Introducing transportation concepts as key leverage for increasing the value of logistics' infrastructure for LSPs

1. Introducing transportation concepts as key leverage for increasing the value of logistics' infrastructure for LSPs Workshop Presentation at Kick Off Meeting February 8th/9th of 2010 Abu Dhabi / UAE

2. Workshop Agenda Topics Time Responsible • Personal introduction and outlining of workshop details • Dornier's workshop presentation • Group work with participants • Presentation of group results and closing of workshop 09:00 a.m. 09:30 a.m. 10:30 a.m. 11:30 a.m. All Empere, Luebke All Group leaders

3. Content of Dornier workshop presentation 1. How does Dornier rate Logistics on a global scale? 2. How does Dornier experience Logistics in the region? 3. Which role do transportation concepts play for Logistics in the region? 4. How do real life transportation projects look like? 5. Where do we go from here?

4. Global and regional trends in the Logistics’ industry (1/4) • Worldwide trade and supply markets extension result in changes of goods flows and transport corridors used • Trade pattern origins and destinations changed through increased globalization, e.g. Europe, USA and Japan are sourcing from China and India • Global container volumes are expected to double again in the coming 10 years • 3 billion new consumers in Asia - becoming the global manufacturing hub - change transportation demand and service requirements • Logistics is a global business – so is competition • Continuous market consolidation, resulting in less but larger international logistics service providers • Logistics is increasingly becoming a vital key industry with independent rules and development mechanisms (No. 4 industry in Germany) • Logistics industry possesses high differentiation potential and is driven by technology, know-how, experience and assets

5. Global and regional trends in the Logistics’ industry (2/4) • International transport container traffic and intermodal transport will continue to increase • The growing economic development will lead to higher import and export volumes of consumer goods • Middle East attempts to become a strategic location for global logistics • Main corner stones have been set and are being developed aggressively • Global development in logistics offers a key and fast growing opportunity especially in the Middle East region • Ports and inland modes are already congested not only because larger vessels are increasingly congesting US, Far East and European ports • Lack of sufficient, modern Terminal infrastructure, however, time lines for developing new ports and infrastructure are long

6. Global and regional trends in the Logistics’ industry (3/4) 1980s 1990s 2000s Future • GCC was established in 1981 • Middle East markets major import markets • Low GDP due to low oil prices and a fully oil-dependent economy • Establishment of Pan Arab Free Trade Area in 1997 • Important transshipment location • First steps of promoting trade and industry to minimize reliance on oil • KSA and UAE driving economic growth in GCC region • Professionalizing bagales to professional retail markets • New airports, seaports, Free Trade Zones • Import for sea-air traffic • Economic growth due to rising oil price • International logistics providers go ME and ME providers go global • Ongoing development of shipping companies from simple carriers to door-to-door operators • Import of project cargo • Industry acknowledgement of transportation and logistics activities as a core corporate process that has to be managed professionally • Increased willingness of the industry to outsource supply chain services • Change from passive driven to active driving economy • Increased railway activity

7. Global merges in land and maritime logistics, providers, contract logistics and fulfillment Integration of individual logistics services towards global SCM For the very first time, ME chances from driven region to driving region while developing global turntable strategies. Carriers haulage arrives in Middle East, first attempts of intermodal transport Consolidation of number of service providers Containerization increasingly replaces general cargo shipping on global level Introduction of Containerization and intermodal transport. First mergers Introduction of container trading patterns Logistics development in ME driven by imports from oversea shipping Fragmented market structure for all Logistics services. Global and regional trends in the Logistics’ industry (4/4) 1980s 1990s 2000s Container shipping crises. Merges and Acquisitions, change of shipping lines from maritime haulagers to carriers haulage/door-to-door services Import market dominated by shipping line haulage, however, following classical market structures and on-carriage organized by forwarders and agencies

8. Service portfolio of LSPs in the Middle East is being broadened gradually Logistics integration level Procurement Requirement planning Supply chain Global LSPs Europe today(e.g. DB Schenker) Supply chain management Global LSPs Middle East tomorrow Production planning Warehousing VAS Packing / Distribution Intermodal transport Global LSPs Middle East today Railway transport Transportation Land transport Air/Ocean transport 2010 2015 2020 2005

9. Global LSPs based in Europe are more and more facing high quality regional market players Global System integrators (4PL) DHL~500‘€ DB Schenker K&N Panalpina Al Majdouie Agility> 1‘‘€ Playing field GAC System service provider (3PL) DP World Kanoo Namma Freightforwarders Aramex>250‘€ MML Al Futtaim ATCO Four Winds S.A. Orient Company Transport Regional Bubble size = revenue indicator high Low Portfolio

10. Freight volume flows in ME require transportation concepts focusing on intermodality as well as road transportation concepts Source: Dornier Consulting GmbH

11. Global Logistics in the Middle East - a typical supply chain Supplier:Overseas Hub 1:Dubai Hub 2:Abu Dhabi Consignee: Seaport Constr. Site 1 Steel Factory 1 Bulk storage Bulk storage Constr. Site 2 Sea transport Road transport Road transport Constr. Site n Cement Factory F I F F F I I I F I -> Logistics infrastructure -> Financing -> Information ->Short-distance truck -> Long-distance/heavy truck

12. Key Performance Indicators (KPIs) from a logistics point of view

13. Reaching the goals set for KPIs requires an integrated approach Comprehensive transportation concept • Framework conditions: • Standardization • Rules & regulation • Training & education • Law enforcement • General safety & security Transportation network Security level Delivery concept Vehicle specifications

14. Cargo defines the ideal transportation mix… Road Rail Sea Air • Cost-effective for short distances (regional) • Time-effective for long distances • Flexibility • Heavy cargo capacity • Timetables • Low failure rate • Ability to transport dangerous goods • Heavy cargo capacity • Very high loading capacity • Availability of special vehicles (dangerous goods, etc.) • Very time-effective • Easy packaging Pros • Dependant on weather and traffic situation • Limited capacity • Limitations for dangerous goods • Danger of accidents • Side tracks necessary • Costs for special vehicles • Inflexibility • Dependant on weather (storm, ice, fog) • Inflexibility • High costs • Limitations for dangerous goods Cons • Traffic counts • Transport modeling • Junction capacity analysis • Parking demand • External/Internal road network • Other traffic (except T&L) • Mitigation measures

15. …however the realities of the region limit the feasible options Road Rail Sea Air E.g.: UAE Rail E.g.: Red Sea Ferry E.g.: LoRoCo E.g.: Saudi Airlines • xxx • xxx • xxx • xxx

16. Puzzle piece 2: Security level Transportation as starting point for security Explosion Events • The larger the vehicle, the larger the explosive device that could be hidden aboard, and the longer the time required for security checking • The worst case is a large articulated vehicle which could carry an explosive device up to 40 tons. Such vehicles can be and are usually prevented by their size from entering standard public parking facilities • The next is ordinary trucks which could carry an explosive device up to 10 tons. They can be prevented by a height bar (usually 3m) from entering standard public parking facilities • Utility vehicles could carry an explosive device of 6 tons, a 4x4 passenger car 1 ton, a saloon car a box or large package 150kg, and on a person or in a briefcase up to 30kg • In explosion events, distance is a crucial factor since the blast force decays inversely with the square of the distance from the device, e.g. if the device is 10m from an object the blast force would be 1/100th of what it would be at 1m • Confined spaces provide ideal conditions for causing damage to a structure because the “contained” pressure from the blast will be much higher than in the open air. Survival of the building structure is the ultimate issue for security. This highlights the importance of preventing explosive devices from entering covered parking facilities, particularly basements and other closed structures. Vents through the ceilings of parking stations may be used to reduce blast pressure if open to unpopulated areas above ground level

17. Puzzle piece 3: Delivery concept

18. Puzzle piece 4: Vehicle specifications

19. Vehicle standards in the GCC are especially required if intermodal solutions are planned for the future Intermodal solutions road-rail could especially help to solve feeder and distribution problems from and to the main ports Moving the line haul part of long distance transport to rail could contribute to diminish the problem of availability of skilled drivers Long-term innovation of the interfaces will be required to improve competitiveness and acceptance of intermodal solutions – as on the road solutions are required that focus on a selected group of containments to reduce complexity and costs Intermodal solutions (IMS) could especially contribute to improve the land bridge Besides that innovations of IMS could leverage industrial business opportunities in the region Vehicle Specifications have a significant impact on intermodal potentials

20. CASE STUDY: CHINA (Longer combination vehicles) Effects of LCVs regarding, CO2, diesel fuel, transport costs and traveled kilometers. Parameter values for the case study Source: UNESCAP working paper P/07/02

21. Transport vehicles in the Middle East • Mostly 2x4 Truck tractor with tandem semi-trailer • Similar vehicles to KSA with exception of DP World who have road train of 2 x 40ft containers! • No proper legislation is in place

22. Transport vehicles in North America and Europe • USA transport limited by GVM and the use of long cab truck tractors 18.75 m and a total weight of 44 tons 25.25 m and a total weight of 60 tons

23. Transport Vehicle in Australia and South Africa • Road trains 53m long (however not used in cities) • 22 Meter, GVM 56,000 KG, (net payload of 36-40 tons)

24. Dornier’s transportation project experiences in the region (INPUT LÜBKE)

25. Conclusion 1 – Developments in the region have formed specific strengths & weaknesses Strengths of the Middle East Weaknesses of the Middle East • Xxx • Xxx • Xxx • Xxx • Xxx • Xxx

26. Conclusion 2 – Europe’s highly integrated logistics’ services hold numerous opportunities and threats Opportunities in the logistics’ industry Threats posed by logistics’ industry • Xxx • Xxx • Xxx • Xxx • Xxx • Xxx

27. Key Essential Path to an integrated Logistics industry in the Middle East places some obstacles... ...so how do we overcome them?

28. Having carefully listened to the presentation… GROUP 1: • …which key opportunities do you see for LSPs in the region? • …what are improvement challenges that have to be tackled by LSPs? GROUP 2: • …what are business challenges that have to be tackled by LSPs? • …which risk management measures definitely have to be initiated by LSPs? INSTRUCTIONS: • Please use the following template • Provide detailed statements

29. Our approach to create a comprehensive workshop result SWOT-Analysis Industry factors Opportunities Threats Regional Factors Strengths Key Opportunities Business Challenges Improvement Challenges Risk Management Weaknesses

30. Template for GROUP 1 Key opportunities Improvement challenges • Xxx • Xxx • Xxx • Xxx • Xxx • Xxx

31. Template for GROUP 2 Business challenges Risk management • Xxx • Xxx • Xxx • Xxx • Xxx • Xxx

32. Dornier Consulting says “Thank You” Dauaride EMPERE Senior Consultant +49 (0) 151 52 630 110 Dauaride.Empere@Dornier-Consulting.com UAE Address:Dornier Consulting GmbHKhalifa Street, Liberty TowerP.O.Box 48327Abu DhabiUnited Arab Emirates Michael Luebke UAE Country Director +971 50 812 24 79 Michael.Luebke@Dornier-Consulting.com

33. Back-up

34. The competition is investing significantly in the Middle East market Competitive environment Global players

35. The competition is investing significantly in the Middle East market Competitive environment Regional players

36. Backup Transition of World Exports

37. Backup Transition of World Exports Source: http://socialisteconomicbulletin.blogspot.com/2008/12/rise-of-asia-in-particular-china-in.html

38. Backup Doubling of container volumes by 2020 despite downturn • Even allowing for the current downturn in global trade, and the first potential decline in container traffic ever in the more than three decades since the inception of wide‐scale containerization, current projections call for world‐wide container volumes to double by the year 2020. • World‐wide container volumes may have fallen by 20% or more during the first months of 2009 as compared with last year, but the fact is that there are still ports in the developing world where limited capacity is still very much a significant and current problem, or that sufficiently modern ports and terminals simply do not even yet exist which can accommodate any moderately‐sized modern cargo vessels, containerized or otherwise, let alone the latest generation giants. Current World Bank analysis calls for a decline in world trade volume of ‐2.1% for this year, before rebounding to a projected 6% growth in 2010. • The World Trade Organization foresees a 9% drop on manufactured export this year, though‐ significantly‐ with a smaller decrease among the developing economies. While global GDP has been forecast to expand by only 0.9% in 2009, the anticipated economic growth of the Developing World is still 4.5%, with sub‐Saharan Africa projected for 4.6% growth this year, and 5.8% in 2010. According to the most recent WTO data for 2008, Africa continues to experience significant growth in both exports and imports. Exports increased 29% to $561 billion, and imports rose to $466 billion, 27% higher than in 2007. This reflects increases in basic commodity and mineral exports, but also a surge in imported consumer goods from an increasingly important African trading partner: China. Africa will continue to see economic and trade growth, and the interest of shipping lines and the global and local port and terminal developers and operators who serve them. http://www.apmterminals.com/uploadedFiles/corporate/Media_Center/Speeches/090404%20World%20Bank%20Transport%20Speech.pdf

39. Backup Logistics Sector Germany • Weighing in just behind trade and the automotive industry, logistics is the third largest sector in Germany, employing some 2.6 million persons. Annual turnover of 166 billion € is earned throughout the industry, representing approximately 7% of German gross domestic product. • The logistics sector also displays far-aboveaverage growth. Around 15 billion € are invested in logistics real estate, technologies and qualification measures each year. http://www.kompetenzcluster.org/fileadmin/vdidaten/Logistik/Fakten/Germany-Logistics-Hub.pdf Stand 2005

40. Backup Challenges in the MENA Region • Although the region is not as dependent on the international economy as are other areas of the world, Middle Eastern agriculture and manufacturing are the main providers of job opportunities and have still become less competitive because of the increasing pressure to export goods to the global markets at lower prices. At the same time, inflation is running above 10% in much of the area due to rises in commodity prices. Inflation is also being driven upward because the currencies of many of the countries in the Arab region are pegged to the US dollar. • Before the financial downturn, the large inflow of foreign exchange into the nations of the region, whether from oil or aid, resulted in a sharp appreciation of domestic currencies. Now, with the US dollar depreciating, the region's Central Banks are forced to keep interest rates below the rate of inflation. With a prolonged global financial downturn, consumer price inflation in food and oil will not be offset through higher revenues from food and oil production. Although price increases in commodities would benefit some producers and investors, wages are not increasing fast enough to match the rising costs of food, fuel and rents, and this will have a continuing impact on poor areas.

41. Backup Challenges in the MENA Region • These combined factors are increasing the social and economic disparity in the region between a super-rich sector, a lower middle class and an impoverished sector. With the recent drop in the price of oil to below $70 a barrel, along with the loss of Arab investments in world stock markets, the level of revenue coming into the region from trade and foreign direct investment is dropping. A prolonged slowdown in the international economy will also cause remittances, job creation, tourism and foreign aid to decline and unemployment to increase, particularly among the youth. The economic downturn will also slow the flow of educated Arab workers into jobs in the oil sector. • Before the global financial crisis, the region benefited whether oil prices were high or low, since the region has both oil producers and consumers. But Middle East producers and consumers are now likely to suffer from either higher or lower oil prices as the financial crisis spreads -- because of the sustained drop in foreign investment coming into the region, as well as the volatility of regional currency values due to the region's monetary pegs to the American dollar which is gradually deflating. Even if oil prices were to rise to their previous high levels of July 2008, this would place a heavy burden on the unemployed and poor as well as the wealthier social sectors because of their reduced purchasing power. http://the-stars.ch/public/uploads/Al%20Ghurair_speech.pdf