1. Transportation Strategy SCMN 4780 Air Freight / Parcel Industry

2. Transportation Strategy SCMN 4780 2 Air Traffic Air / Parcel

3. Transportation Strategy SCMN 4780 3 2010 US Shipments(TONS) Truck12,49068% Rail1,77610% Pipeline1,4948% Intermodal1,3808% Inland Water8605% Air120% Other3022% Total18,313 Rail Truck Air / Parcel Share of US Transportation Market Pipeline Inter- modal Inland Water Air / Parcel Air carriers are airlines dedicated to the to the transport of freight via plane; many airfreight airlines are divisions of larger passenger airlines Air Freight?

4. Transportation Strategy SCMN 4780 4 Transportation Sector Revenue Air / Parcel Of the United States transportation mode industry revenue in 2010, air / parcel freight totaled ~35%

5. Transportation Strategy SCMN 4780 5 Trends in Air Freight Air / Parcel

6. Transportation Strategy SCMN 4780 6 International Transportation – Water / Air Air / Parcel

7. Transportation Strategy SCMN 4780 7 Air Freight Domestic Transportation Air / Parcel

8. Transportation Strategy SCMN 4780 8 Air / Parcel Rank*Cargo Airline2010 1 FedEx Express15,743 2 UPS Airlines10,194 3Cathay Pacific9,587 4Korean Air9,542 5Emirates7,913 6Lufthansa7,423 7Singapore Airlines7,001 8China Airlines6,410 9Cargolux5,166 10EVA Air4,901 Largest Global Air Cargo Carriers * Ranked by Ton Mile

9. Transportation Strategy SCMN 4780 9 FedEx was founded as Federal Express Corp. in 1971 by 28-year-old Memphis native Frederick W. Smith. As originally outlined in a term paper he wrote for a Yale University economics class, his idea was an overnight delivery service. FedEx was launched when Smith supplemented a $4 million inheritance with $91 million in venture capital to get the company off the ground. The business model is to ship all packages through a single hub with an owned private fleet of aircraft. Deregulation of the airline industry in 1977 gave the still-struggling company an important boost through lessening federal aircraft and airline regulations US significant economic growth in the 1980s coupled with UPS inability to deal with the significant opportunity provided business opportunities. It purchased Gelco and Tiger International (aircraft and landing rights) to meet global business demand Federal Express History Air / Parcel FedEx revolutionized the was package delivery was thought of in business world by replacing the model of using passenger aircraft by developing an economically feasible methods of guaranteeing overnight package delivery.

10. Transportation Strategy SCMN 4780 10 FedEx Company Overview Air / Parcel FedEx Express – overnight courier services providing next day air service within the US and time-definite international service FedEx Ground – guaranteed day-definite delivery within Canada and USA at a cost savings vs. time-definite FedEx Express FedEx Freight – LTL and other freight services (formerly American Freightways, Viking Freight, and Watkins Motor Lines FedEx Custom Critical – delivers urgent, valuable, or hazardous items using trucks and chartered aircraft FedEx Supply Chain Services – provides 3 rd party logistics services (formerly Roadway Logistics Systems) FedEx Office – retail arm offering copying and digital printing, professional finishing, document creation, Internet access, computer rentals, signs and graphics, direct mail, and FedEx shipping

11. Transportation Strategy SCMN 4780 11 1907 – Jim Casey borrows $100 from a friend to start the American Messenger Company in Seattle, WA 1913 – company acquires first delivery car, a Model T Ford; changes technique to consolidated delivery; Casey chooses name of Merchants Parcel Delivery 1919 – expands from Seattle to Oakland and changes name to United Parcel Service 1922 – UPS introduces innovative "common carrier" service in Los Angeles 1924 – UPS builds the first conveyor belt system for handling packages 1930 – UPS expands to east coast beginning delivery operations in NY and NJ 1953 – UPS resumes air operations; Blue Label Air provides two-day service to Chicago, Detroit, and several major cities on the east and west coasts 1957 – first interstate expansion of common courier service. UPS serves areas of five states within 150-mile radius of Chicago 1975 – UPS becomes first package delivery company to serve 48 contiguous states History of UPS Air / Parcel Over the past 100 years, UPS has become an expert in transformation, growing from a small messenger company to leading provider of air, ocean, ground, electronic services

12. Transportation Strategy SCMN 4780 12 1982 – UPS purchases first aircraft for use in air delivery service 1983 – began operations from Louisville air hub 1985 – began international air service between U.S. and six European countries 1990 – serving 175 countries, UPS schedules first flights to Asia on its own aircraft 1993 – UPS Logistics Group established to provide global supply chain solutions 1996 – UPS online tracking software provides a real-time image of receiver's signature and allows a customer to track up to 100 packages at a time 2001 – UPS launches direct flights to China with China Express 2002 – UPS begins operations at new intra-Asia hub located in Philippines History of UPS (continued) Air / Parcel UPS Worldport Air Hub @ Louisville International Airport

13. Transportation Strategy SCMN 4780 13 UPS Company Overview Air / Parcel US Package Delivery – time definite letters, documents and packages delivered to domestic locations International Package Delivery – letters, documents and packages delivered to 220 countries world-wide Supply Chain Freight Services – 3 rd party logistics freight forwarding and operations UPS Ground Freight – Truckload and LTL business from acquisition of American Freight, Overnight Transportation, Viking Freight UPS Store – franchised stores offering retail shipping, postal, printing and other business service centers

14. Transportation Strategy SCMN 4780 14 There is no single definition which encompasses the express / parcel industry. On a global basis, there are several firms that operate in the market providing services domestically and internationally. As a general rule, the industry is described by: Time Sensitivity – express / parcel service is characterized by the time sensitivity involved in delivery; express carriers usually undertake to deliver consignments by a specified day (often next day) and by a specified time Package Size – maximum weight of parcel is 70lbs; this weight describes the maximum that can be handled by one man; the weight limit is important to ensure that standardized procedures, which are essential to the profitable running of a network, are maintained Parcel Transportation Industry Air / Parcel

15. Transportation Strategy SCMN 4780 15 Amazon.com Distribution Center Air / Parcel

16. Transportation Strategy SCMN 4780 16 Air / Parcel Parcel Industry Market Share USPS leads the world in processing letter mail but UPS and FedEx have significant higher market share for parcels. Letter volumes are decreasing and parcel volumes are increasing. Parcels represent approximately 2% of mail volume.

17. Transportation Strategy SCMN 4780 17 21 st Century US Parcel Industry Air / Parcel UPS – FedEx – Airborne Express – USPS ( 2000 ) UPS – FedEx – DHL Express – USPS ( 2009 ) UPS – FedEx – USPS ( Today )

18. Transportation Strategy SCMN 4780 18 Deutsche Post (DHL) – January 2009 Air / Parcel “Today, DHL sets the benchmark for the bottom thresholds of pricing. There are deals out there that FedEx and UPS just would not handle at the price DHL offers,” Jerry Hempstead said. “From a competitive marketplace point of view, I know that when DHL is in the game and the other carriers are aware of it, the pricing is significantly better from the competition.”

19. Transportation Strategy SCMN 4780 19 Air / Parcel Today’s Parcel Industry Comparison UPS (union) ~ 65% of total operating costs are labor FedEx (non-union) ~ 45% of total operating costs are labor USPS (union) ~ 80% labor

20. Transportation Strategy SCMN 4780 20 Shipper Connectivity to Carrier Air / Parcel

21. Transportation Strategy SCMN 4780 21 Air / Parcel “UPS reached agreement to acquire TNT Express, a Dutch air carrier, for $6.8 billion. The deal will greatly increase the company’s market share in Europe and open inroads in China. The newly combined company will earn 36% of its combined revenues outside the US, compared with 26% of UPS’s current revenues, according to a statement from both companies.” Mergers & Acquisitions March 17, 2012 UPS to Buy TNT Express for $6.8B

22. Transportation Strategy SCMN 4780 22 Future Projection – Air Freight Air / Parcel