TSA CCSP Presentation to Shipper Associations May 20, 2009

1. 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. Table of Contents

3. Overview & Impact of the “9/11 Act”

4. 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 commensurateto 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, 2007. Congressionally Mandated Cargo Screening Benchmarks 50% 9/11 Act 100% August 2010 August 2007 February 2009

5. 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. Screening Technology Tools TSA Approved Screening Methods (from 9/11 Act) • 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.

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

8. 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.

9. TSA Approach to Assist Industry in Attaining Screening Mandates

10. TSA Approach to Assist Industry in Attaining Screening Mandates • Certified Cargo Screening Program • Forwarders and shippers • 2. Narrow Body Screening • Airlines

11. TSA Approach to Assist Industry in Attaining Screening Mandates • 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.

12. 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 Manufacturing Facilities Warehouses/ Distribution Centers Third Party Logistics Providers Contract Manufacturers Freight Forwarding Facilities • Any entity with the desire to screen cargo must have a facility that can be secured.

13. TSA Approach (cont.) • Narrow Body Screening • Required airlines to screen 100% of cargo on narrow body aircraft October 2008. • Primarily small “express” shipments. • No “skids” fit into narrow body aircraft. • No further impact to shippers is anticipated.

14. 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.

15. Attaining 50 & 100% Issues and Challenges

16. 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 31st, 2009).

17. 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 eliminatedSeptember 1, 2009. • Most air cargo is still tendered on skids/shrink wrap/banded. • Limited screening technology availableto 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. 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. 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 2009. 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.

20. Opportunities for Shippers

21. TSA “Stimulus” for Shippers • Submit applications by August 1, 2009 to secure early participation benefits.

22. 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.

23. Links to TSA

24. For more information please visit http://www.tsa.gov/what_we_do/tsnm/air_cargo/index.shtm Follow link for more information on the Certified Cargo Screening Program