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Date: 1 November 2005

IATA e-freight Conference, Geneva

Good morning and welcome to our home in Geneva. You all know our industry is changing rapidly. IATA is taking a lead in many of those changes. Simplifying the Business is at the heart of our efforts to bring cost-efficiency and convenience to the industry’s outdated processes. Cargo is a key part of our efforts. It is an important part of our industry—accounting for 12% of total revenues. IATA now has a new strategy that reflects cargo’s high priority. For example we are expanding our Cargo Account Settlement Systems.

  • In 2004 CASS settled over US$16 billion in transactions in 41 countries
  • By the end of this year CASS will be in 50 countries and 70 by end 2006

So over the past months we have been leading a quiet revolution with IATA e-freight. Our mission is to take the paper out of cargo by the end of 2010. This is more than just a change, it is an industry revolution. To deliver we need the entire industry on board. This conference is a critical launch point to ignite our efforts and start running. With us today are leaders and change agents from across the industry. Dave Bronczeck, CEO for FedEx and a member of IATA’s Board of Governors is here to show his support and help drive e-freight forward. And it is great to see representatives from so many areas of the cargo world

  • Airlines
  • Freight forwarders
  • Customs organisations
  • Industry partners and
  • Government

The global situation of the industry is critical. And the success of IATA e-freight has a critical role to play in bringing the airline industry back to health.

Before getting into specifics on IATA e-freight, let’s review the global airline crisis

Between 2001 and 2004 airlines lost over US$36 billion. We expect another US$7.4 billion in losses this year. Our US$97 billion fuel bill is robbing our profitability. Fuel is now 25% of our operating costs up from 14% in 2003. We are battling with efficiency gains and fuel surcharges. In just one year, we have increased the breakeven price of fuel from US$33 per barrel to US$51. This is an amazing achievement. The cargo side of the business has been more successful with fuel surcharges than passenger. Cargo yields are up 7% over 2003. But we cannot keep up with rising costs. Industry-wide we are absorbing 60% of the increased cost of fuel. There is no sign that fuel prices will drop anytime soon.

And the situation is set to get worse

It appears that we have passed the peak in the economic cycle. The high price of fuel is starting to have an impact on the global economy. Air cargo is a leading indicator. Between 2003 and 2005 our cargo business grew from US$40 billion to US$50 billion. Economies were expanding rapidly and saw double digit freight traffic growth in 2004. However, yesterday we announced that cargo growth for the first three quarters of 2005 was 3.0%. And our new growth forecasts for 2005-2009 expect 6.3% average annual growth rate. The operating environment will continue to be challenging.

The case for change is urgent

Simplifying the Business is a critical element for industry change. In 2004 your airline CEO’s agreed to Simplify the Business with five core projects. In addition to IATA e-freight, the CEO’s agreed to

  • 100% Electronic ticketing by the end of 2007
  • Common Use Self Service check-in
  • Bar coded boarding passes
  • Radio Frequency Identification for baggage management

They all use technology more effectively to reduce costs and increase convenience for passengers and shippers. Together these initiatives will revolutionise the way we do business. And they will save the industry US$6.5 billion per year. IATA e-freight will eliminate paper from air cargo processes by 2010. We will take away duplication, speed up processing and improve quality. And we will save US$1.2 billion annually.

Where are we now?

We are drowning in paper.

  • Every cargo shipment travels with up to 38 documents
  • Each year we fill 39 747 Freighters with paper

We are slow.

  • In 1972 the average time for an air cargo shipment was 6.5 days
  • In 33 years we have only reduced that by 12 hours

And we are not taking full advantage of technology.

  • Air Cargo produces 35 million Air Waybills every year
  • Electronic airway bills have been around for 17 years
  • But today only 15% of cargo shipments make use of them

The industry result is that we waste time and money processing paper instead of serving our customers.

  • With 24 million tonnes of freight in 2004, the cost is US$1.2 billion
  • Imagine the cost in 10 years when we carry double the volume

Frustrated by lack of progress, some have created their own solutions.

  • A few integrated freight carriers such as FedEx, DHL or UPS have built their own solutions
  • More advanced customs organisations have unique data requirements and processes

The result is 30 years with very little improvement. We must remember that we are a global industry. It is time to maximise efficiency with global solutions.

If we don’t arrive at our solutions—tailored to air transport—change will be forced upon us on three fronts.

First, the UN and the World Customs Organization are moving towards paperless world trade.

  • Remember that 40% of the value of goods traded internationally are transported by air
  • We will be an integral part of their conclusions

Second, stricter security requirements are changing customs processes.

  • Customs organisations are demanding accurate manifest information electronically before flights arrive
  • And there are large penalties for non-compliance
  • Security driven change will be costly if it is not a part of a global effort

Third, our customers—shippers, manufacturers and importers—are demanding change to improve their own efficiency.

  • Just-in-time manufacturing needs reliability
  • They are demanding online access to timely, accurate and end-to-end information for tracking and cost control

IATA e-freight responds to all three. We have an opportunity to create a harmonised system that

  • Reduces costs
  • Facilitates global trade
  • Improves security and
  • Helps our customers with a more user-friendly product

And, I have saved the best for last.

  • We estimate that e-freight enables a reduction in international shipment times by 25%—from 6 days to 4.5.

So, let’s get moving. Let’s take this opportunity to start the e-freight revolution. And let’s do so with the same passion and commitment as we have done with passengers. Cargo should no longer be the poor cousin – it is too important. We must use this momentum and the e-freight project to close the gap of 20 years of talking with no results.

Where do we go from here?

We have four key elements in place for success.

First, we have leadership and resources

IATA has a clear mandate from the airline CEOs. And we have strengthened our cargo department by bringing Aleks Popovich on board as our Global Head of Cargo. Aleks will lead e-freight with the support of a re-organised department. He also has the support of the 140-strong global Simplifying-the-Business team and its US$10 million budget.

Second, we have a structure for industry-wide cooperation

In April we established an Industry Action Group (IAG) to represent your needs as key stakeholders. Its job is also to engage, align and – with IATA - drive the industry forward. Already we have defined e-freight’s vision, scope and approach.

Third, we have a deadline—2010

We cannot afford another 20 years of discussions. We need results fast. We agreed to fast track early adopters. By the end of 2007 e-freight will be a reality on key targeted trade routes. And, by the end of 2010, 95% of world trade air cargo volume will be paper free. The vision beyond 2010 is to completely eliminate all paper across the full multi-modal supply chain.

Fourth, we have the technology

A technical solution will be available to enable the flow of information along internationally accepted standards. With these four elements of success, I am confident that we will bring great and important change to our industry.

The road ahead will be complex

We will involve more than 16,000 stakeholders including:

  • at least 20 industry bodies
  • 200 national customs organisations
  • 265 airlines
  • and well over 15,000 freight forwarders

Our approach will be methodical and fast. To achieve results with governments, we are inserting ourselves into the UN, WCO process. And we are surveying customs organisations, top freight forwarders and airlines in 16 countries to facilitate the early adopters project. The list includes all of the key cargo markets. The results will identify countries that are ready for e-freight trials. We will also identify those states that are not ready. For example, to limit airline liability, States must have in force Montreal Protocol 4 or the Montreal Convention of 1999. We will be campaigning globally to get states on board quickly. I have already started that process in South Africa and India. We are making progress. But enormous amount of work is still ahead of us. I count on the support and cooperation of everyone in this room to move us forward.

In closing let me be very clear: there is no turning back

The plane is pushing back and those who are not on board are at risk. This conference is an important opportunity to understand change. The world is moving to paperless trade. Those using paper will eventually be penalised or turned back. Customers demand better service.

  • Shippers, importers and manufacturers will turn to companies with e-freight capability

IATA’s role is two-fold.

  • To lead solutions that will make our industry more cost efficient, safe and secure
  • To bring our carriers and the freight community along with change

I urge the industry to develop plans, set aside funds and identify the resources needed to realise e-freight in your companies. I urge governments and customs authorities to harmonise requirements we desperately need for a global solution. Most importantly, we must work together as a team. And we must move fast. We have five years to achieve a revolution. With your support, I am sure that we will be successful.


 

IATA e-freight - from words to action
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