NOTIONAL – FOR DISCUSSION PURPOSES ONLY The Impact of Implementing Recommendations of the 9/11 Commission Act of 2007 on US-based Shippers TSA CCSP Presentation to Shipper Associations May 20, 2009

2 NOTIONAL – FOR DISCUSSION PURPOSES ONLY Table of Contents Overview & Impact of the “9/11 Act” TSA Approach to Assist Industry in Attaining Screening Mandates Attaining 50 & 100% Issues and Challenges Opportunities for Shippers Links to TSA

NOTIONAL – FOR DISCUSSION PURPOSES ONLY Overview & Impact of the “9/11 Act”

4 NOTIONAL – FOR DISCUSSION PURPOSES ONLY 100% Screening Legislation  The legislation mandates 100% screening by August 2010 and requires TSA to:  Establish a system to screen 100% of cargo transported on passenger aircraft.  Provide a level of security commensurate to that of passenger baggage (piece level).  No funding provided.  Industry expected to bear all costs. Background  President Bush approved legislation Implementing Recommendations of the 9/11 Commission Act of 2007 on August 3, % February % August 2010 August /11 Act Congressionally Mandated Cargo Screening Benchmarks

5 NOTIONAL – FOR DISCUSSION PURPOSES ONLY Piece Level Screening  Piece level cargo is the individual item within a shipment. The number of pieces is determined by the number of pieces identified by the shipper-level documentation.  As of February 1, 2009, 50% of all cargo must be screened at the piece level prior to being loaded on a passenger aircraft.  By August 3, 2010, cargo must be 100% screened at the piece level.  In 2007, over 15 million lbs/day transported on passenger aircraft.  As of 2007, all screening was performed (allowed) only by airlines.

6 NOTIONAL – FOR DISCUSSION PURPOSES ONLY Screening Technology Tools  Physical search (Includes opening boxes, removing and opening all inner cartons)  AT X-ray*  Explosives Trace Detection (ETD)* 1  Explosives Detection System (EDS)*  TSA operated canines  Any other detection equipment accepted in the future by TSA (1) Equipment of choice (lowest cost technology). * All technologies must be on the current TSA Screening Technology List which is made available to screening participants. TSA Approved Screening Methods (from 9/11 Act)

7 NOTIONAL – FOR DISCUSSION PURPOSES ONLY Impact on Air Cargo HNL JFK LAX ORD ATL MIA SFO IAD EWR DFW IAH BOS SEA PHL DTW DEN SJU MCO  Over 65% of all cargo on passenger aircraft is uplifted from 18 major gateways (wide body aircraft cities).  Wide body aircraft (B-777, 747, 767, etc.) carry 94% of “passenger aircraft” cargo from these cities.  Most of this is export.

8 NOTIONAL – FOR DISCUSSION PURPOSES ONLY Challenges for Industry  Most “wide-body” cargo is tendered in skids (larger shipments).  Most wide-body cargo flows through freight forwarders (consolidators).  Freight forwarders typically “containerize/palletize” cargo prior to tendering to airlines.  If “airlines only” must screen all cargo, they anticipate significant delays, increased processing/cut-off times, costs.  Airlines lack space/facilities to “de-palletize”, screen, and re-configure these shipments.  Potential exists for damage to packaging/goods.

NOTIONAL – FOR DISCUSSION PURPOSES ONLY TSA Approach to Assist Industry in Attaining Screening Mandates

10 NOTIONAL – FOR DISCUSSION PURPOSES ONLY TSA Approach to Assist Industry in Attaining Screening Mandates 1.Certified Cargo Screening Program Forwarders and shippers 2.Narrow Body Screening Airlines

11 NOTIONAL – FOR DISCUSSION PURPOSES ONLY Certified Cargo Screening Program created to:  Allow screening of cargo early in the air cargo supply chain by a trusted, vetted, and audited facility.  Initiate and maintain the integrity of a shipment throughout the supply chain by utilizing stringent chain of custody methods.  Enable entities such as shippers to incorporate physical screening into packing process. Participation in CCSP is voluntary, but requires participant to:  Implement and adhere to facility security standards and access controls.  Train employees and authorized representatives on CCSP and security responsibilities.  Get Security Threat Assessments (STAs) for employees involved in screening.  Screen cargo in accordance with TSA screening standards and processes.  Initiate and maintain chain of custody on all screened cargo.  Permit onsite facility assessments by TSA-Approved Validation firm or PCSA.  Adhere to all program requirements, subject to TSA inspections, after certification. TSA Approach to Assist Industry in Attaining Screening Mandates

12 NOTIONAL – FOR DISCUSSION PURPOSES ONLY Who can become a Certified Cargo Screening Facility? The CCSP is a facility based program. Facilities screening under the CCSP will be known as Certified Cargo Screening Facilities (CCSFs). Shipping Facilities Freight Forwarding Facilities Third Party Logistics Providers Manufacturing Facilities Warehouses/ Distribution Centers Contract Manufacturers  Any entity with the desire to screen cargo must have a facility that can be secured.

13 NOTIONAL – FOR DISCUSSION PURPOSES ONLY TSA Approach (cont.) Narrow Body Screening  Required airlines to screen 100% of cargo on narrow body aircraft October  Primarily small “express” shipments.  No “skids” fit into narrow body aircraft.  No further impact to shippers is anticipated.

14 NOTIONAL – FOR DISCUSSION PURPOSES ONLY CCSP Applications Received/Certifications thru May, 2009 Applications received as of May 2009: –1,124+ CCSF applications have been received. Certification as of May 20, 2009: –350 facilities have been certified (90% are freight forwarders). Application momentum has fallen off since “50% attained ”: –From existing applicants. –Few new applicants.

NOTIONAL – FOR DISCUSSION PURPOSES ONLY Attaining 50 & 100% Issues and Challenges

16 NOTIONAL – FOR DISCUSSION PURPOSES ONLY Reaching 50% (Feb 1, 2009) 50% milestone was “seemingly easy” for shipping community, but:  Economic downturn caused over 35% drop in volume of cargo.  Airlines invested significantly in additional technology (primarily ETD).  CCSF (Certified) Freight Forwarders handled some cargo screening on behalf of shippers (a new program).  TSA provided Air Carriers and IACs with flexibility when determining what to screen at 50%. - Narrow body shipments helped the equation.  Certain commodities were excluded for a limited time frame (until August 31 st, 2009).

17 NOTIONAL – FOR DISCUSSION PURPOSES ONLY Industry Challenges for 100% (Aug 1, 2010) The 100% cargo screening deadline is rapidly approaching.  All commodities will require screening, at the piece level, prior to transport.  Alternate Means of screening of certain commodities will be eliminated September 1,  Most air cargo is still tendered on skids/shrink wrap/banded.  Limited screening technology available to meet industry’s need (manufacturing backlogs). 85% of entities utilize ETD as their primary method of screening. Alarm resolution for ETD (other than physical search) is challenging. High risk of physical inspection resolution as a result of “contamination” while in forwarder or airline vehicles/docks. -Recent example: -A shipment of venetian blinds was screened by canine and ETD, both recognized alarm. Resolved by physical inspection and found to be clean.

18 NOTIONAL – FOR DISCUSSION PURPOSES ONLY Industry Issues Through extensive interaction with Industry, we have gained insight into some key issues specific to various industries: Hi Tech: Some products are sensitive to static discharge. Perishables: Delay in screening may damage or spoil goods. Goods may also require refrigeration. Pharmaceuticals: Many products must be kept refrigerated. Others are FDA sealed and cannot be opened without damaging content. Museums & Galleries: Fine art is fragile, priceless, and unique; requiring very specific screening processes and procedures.  Most shippers do not want to risk the possibility of having their shipments opened for physical resolution of any “false alarm” issues (contamination).

19 NOTIONAL – FOR DISCUSSION PURPOSES ONLY TSA Concerns toward 100%  Waning CCSF application flow from shipper community.  Perception that reaching 50% was easy, thus a similar result at 100%.  The hardest part still lies ahead.  Difficult, complex cargo remains.  Most of the shipments screened today are not skidded.  Airport/airline space limitations inhibit ability to break apart, screen, re-skid, etc.  Time constraints – carriers indicate they will require significantly earlier cutoff times.  Risk of delay or damage.  Economic recovery leading to increase in cargo volume.  Screening 100% of 15 million lbs in 2010 vs. 50% of only 9 million lbs in February This represents a 300% +/- increase in the amount of cargo to be screened!!  Commodities with unique screening needs.  Insufficient availability of technology to meet industry demand (backlogs).  High risk of physical inspection due to potential contamination in transit to carriers.  Maintain integrity of shipper skids.

NOTIONAL – FOR DISCUSSION PURPOSES ONLY Opportunities for Shippers

21 NOTIONAL – FOR DISCUSSION PURPOSES ONLY Early ParticipationFuture Participation  Extended period of time (90 days) to review regulatory documents before committing.  Free onsite facility assessments by TSA.  Free Security Threat Assessments for up to 200 individuals per facility.  Free TSA consultation services – site visits, examples and templates, step-by-step guidance through certification.  Deferred screening start date option. - Shipper will have an extended period of time to attain 100% screening level post- certification.  Limited time allowed to review regulatory documentation before required decision.  TSA-Approved Validation Firms will perform facility assessment for a fee.  STA submission for a fee (currently approx. $28).  May need consultant support?  Required to commence screening and attain 100% within 90 days of certification. TSA “Stimulus” for Shippers  Submit applications by August 1, 2009 to secure early participation benefits.

22 NOTIONAL – FOR DISCUSSION PURPOSES ONLY Summary  50% was reached thanks to the hard work of Air Carriers and existing CCSFs Freight Forwarders.  Reaching 100% requires larger community effort to overcome industry challenges and TSA concerns.  CCSP is the solution for industry to meet the 100% screening mandate, and fully supported by the air freight and air carrier industries.  Only CCSF shippers can ensure the integrity of their shipments.  Most shippers can readily incorporate “physical search” into packing/shipping process – without investing in equipment.  TSA is providing an incentive for shippers to join CCSP.  The alternative – only cargo that is fully screened will be uplifted on August 1, 2010.

NOTIONAL – FOR DISCUSSION PURPOSES ONLY Links to TSA

24 NOTIONAL – FOR DISCUSSION PURPOSES ONLY For more information please visit Follow link for more information on the Certified Cargo Screening Program