Annual Report )) Move forward with us

Annual Report 2002 )) Move forward with us Group Management Structure as of May 2003 Board of Directors Chairman Gerhard Fischer Vice Chairman O...
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Annual Report 2002

)) Move forward with us

Group Management Structure as of May 2003

Board of Directors

Chairman Gerhard Fischer

Vice Chairman Otto Schmid

Jürg Furger Heinz Kühnlein Wilfried Rutz* Roger Schmid* Heinrich Walti Corporate Auditor

Steering Committee

Otto Schmid Jürg Furger

Bruno Sidler Roland Wider

Regional CEO AMEC

Regional CEO AMERICAS

Regional CEO APAC

Regional CEO EUROPE

Roland Wider

Monika Ribar

Jörg Eggenberger

Christian Ryser

Lars-Ola Gunnarsson

Gustav Zschiesche

*Subject to election by the General Assembly.

EUROPE

CIO

APAC

CFO

AMERICAS

President & CEO Bruno Sidler

AMEC

Executive Board

Chairman Gerhard Fischer

Panalpina World Transport (Holding) Ltd

Seafreight • Seafreight services from anywhere to everywhere • Centralized and integrated capacity management through the in-house carrier ASB-Sea • Best-in-class partner agreements • Door-to-door Intermodal concepts • Full Container Loads (FCL) and Consolidated services (Less than Container Loads = LCL) with a global network of dedicated freight hubs

Airfreight

Logistics Solutions

• Centralized and integrated capacity management through the in-house carrier ASB-Air

• Integrated tailor-made logistics solutions in conjunction with airfreight and seafreight services

• Worldwide network linked through an extensive global hub and subhub system

• Focusing on key accounts in selected key industries

• Integrated door-to-door services • Tight ground network to and from the hub centers • Close cooperation with selected firstclass carriers

• Worldwide NVOCC services provided by Pantainer Express Line

• Aircraft chartering and emergency services

• Tracking and tracing system

• Tracking and tracing system

• Inventory management, order processing, pick and pack, value added services • Warehouse Management Services with state-of-the-art IT applications • Efficient quality control system

Panalpina is one of the world’s leading providers of forwarding and logistics services, focusing on its core activities intercontinental airfreight and seafreight. In addition, Panalpina provides integrated logistics solutions mainly for customers in the key industries high-tech, automotive, healthcare and oil & gas and offers worldwide project transport. By focusing on its own centrally organized freight capacity management, on standardized processes and integrated IT systems, Panalpina generates added value for its customers and ensures profitable

)) Panalpina

long-term growth for the Group. The regional management structure ensures close links to clients and enables the consistent implementation of our customer-focused and target-oriented Group strategy. Panalpina operates a global network in 136 countries consisting of 480 own offices in 74 countries. The Group employs around 12 000 well-trained and motivated employees – all of them engaging the »Spirit of Panalpina« to the benefit of its customers.

Preface

02

Preface By Gerhard Fischer, Chairman of the Board of Directors

»The fact that the Group equaled previous year's good results despite adverse conditions is a remarkable achievement.«

Panalpina held its ground well in a challenging environ-

The long-term development of the Group is safeguard-

ment in 2002. The fact that the Group equaled pre-

ed by the fact that Panalpina’s shareholder structure

vious year's good results despite adverse conditions

remains unchanged. The present stock-market environ-

is a remarkable achievement.

ment has vindicated the decision of the Ernst Göhner

Business was dominated by the slack global economy, sharp sales declines in some of the key industries, falling rates and pressure on margins. However, the

Foundation, our sole shareholder, to leave the Group under its umbrella rather than opening it up to the capital markets. The Group welcomes this arrangement.

negative market sentiment did not seriously influence

At this point I should like to thank our shareholder for

Panalpina's results. As in previous years, there were

the freedom of movement that it has allowed manage-

positive balancing effects from the global positioning

ment, for encouraging our dynamic development and

of our business and our broad range of services.

for rewarding our success. Its confidence is the basis

This result indicates that Panalpina's earning power has improved substantially in recent years. The standardization of our services and operating processes

of Panalpina’s success. The planned enlargement of the Board of Directors will help to safeguard continuity in the supervisory bodies.

has generated a sustained increase in profitability. Our

My thanks are also due to the Executive Board and

strategy of organic growth from within the Group has

to managers and staff throughout the world for their

proved successful and has not had any adverse effects

outstanding achievements, their competence and their

on our business. Indeed, I doubt whether the aggres-

single-minded pursuit of our common aims. Even in

sively expansionist policies of some of our competi-

difficult times, Panalpina stands by its conviction of

tors have actually generated the claimed benefits for

being a reliable, motivating employer.

customers.

I am convinced that Panalpina will prove equal to all

Panalpina will continue along the road it has chosen,

the challenges facing it, and that our future rests on

utilizing additional potential for earnings-oriented

solid foundations.

growth. In regional terms Asia in particular still offers great opportunities. The success and stability of Panalpina are also due to the creation of a regionalized management structure. This increases Panalpina’s already high degree of customer proximity, leading internally to cost optimization and improvements in productivity. The operating effect is reinforced by our simultaneous success in streamlining decision-making paths, despite the Group’s substantial growth in recent years.

03

Executive Board

04

Christian Ryser

Lars-Ola Gunnarsson

Bruno Sidler

Regional CEO North/South America

Regional CEO Asia-Pacific

President & CEO

(Americas)

(APAC)

since 1998

Born 1957

Born 1948

Born 1957

Member of the Executive Board

Member of the Executive Board

Responsible for the Business Divisions

since 2002

since 2002

ASB-Air, ASB-Sea and the following

USA, Canada, Argentina, Brazil, Chile,

Australia, Bangladesh, China, India,

Colombia, Costa Rica, Dominican

Indonesia, Japan, Korea, Malaysia,

Republic, Ecuador, El Salvador, Guatemala,

New Zealand, Philippines, Singapore,

Honduras, Mexico, Nicaragua, Panama,

Sri Lanka, Taiwan, Thailand, Vietnam

Peru, Uruguay, Venezuela

Corporate Functions: Corporate Business Development (incl. Global Accounts/Group Logistics, Sales & Marketing), Corporate Relations (incl. Agents Relations), Corporate Human Resources, Corporate Secretary: Corporate Legal Services (incl. Insurance/Security), Corporate Communications

Roland Wider

Jörg Eggenberger

Gustav Zschiesche

CFO

Regional CEO Africa, Middle East,

Regional CEO Europe

Born 1959 Member of the Executive Board since 2002 Responsible for the Corporate Functions:

Central Asia, CIS (AMEC) Born 1961 Member of the Executive Board since 2000

Born 1944 Member of the Executive Board since 2002 Austria, Belgium, Czech Republic,

Corporate Financial Reporting and Tax

Responsible for the Corporate Functions:

Denmark, Finland, France, Germany,

Management, Corporate Treasury,

Global Oil & Gas and the Business

Hungary, Ireland, Italy, Luxembourg,

Corporate Credit Control, Corporate

Divisions ASB-Oil & Gas, ASB-Panprojects

Netherlands, Portugal, Spain, Sweden,

Controlling

Algeria, Angola, Azerbaijan, Bahrain, Cameroon, Chad, Congo, Egypt, Equa-

Monika Ribar

torial Guinea, Gabon, Georgia, Ghana,

Chief Information Officer (CIO)

Qatar, Russia, Saudi Arabia, South Africa,

Born 1959

Tunisia, Turkey, Turkmenistan, UAE,

Kazakhstan, Kyrgyzstan, Morocco, Nigeria,

Ukraine, Uzbekistan Member of the Executive Board since 2000 Responsible for the Corporate Functions: Management Information Systems (MIS)/Corporate Planning, Business Processes and Quality, Corporate Information Technology

Switzerland, UK

Interview with the CEO

06

Interview with Bruno Sidler, President and Chief Executive Officer

The global recession last year caused considerable

Looking back, are you satisfied with the reorgan-

difficulties for many businesses. What impact did

ization of the Group into four regions? The reorgan-

the situation have on the Panalpina Group? 2002

ization of the Group's management structure into four

was a difficult year, with an uncertain economic envir-

main regions was implemented in the first quarter of

onment and a substantial contraction of the high-tech

2002. We have already achieved our initial goals of

industry in Europe and North America.

better utilizing regional synergies through various struc-

Additional negative influences, such as relatively high volatility of the leading currencies, the crisis in Latin America and the collapse of shipping rates due to excess capacity, further exacerbated the challenges faced by the Group.

How would you assess the Panalpina Group’s results for 2002? Under the circumstances, we are very satisfied with how the year turned out. After all, we not only matched, but even slightly exceeded, our record profit of 2001.

tural adjustments. This direction-setting change for the Group was realized in a rapid and controlled manner. We are confident that the new structures will make a strong contribution to achieving our ambitious growth and productivity goals more quickly.

What is the main contributing factor in last year’s very good earnings figure? Our strategic focus on core industries paid off precisely in this fiercely contested market. We were able to substantially increase our share of business with existing major customers in the high-tech, oil and automotive industries. A large

The declines in revenues, gross profit and EBIT were

number of new contracts with other Original Equipment

due largely to the appreciation of the Swiss franc

Manufacturers (OEMs), and with major suppliers to

against the US dollar and the euro. Adjusted for cur-

these industry groups also prove that customers value

rency effects, we recorded advances in the single-digit

our capable and customer-focused service.

percentage range, which in light of occasionally dramatic collapses in freight rates and gross margins testifies to the Group’s robust constitution.

Moreover, the boom in the oil & gas industry was a welcome contrast to generally flatter growth in the high-tech and automotive industries.

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Interview with the CEO

At the beginning of the new fiscal year we resolved to

To what extent has regionalization further enhanced

take up the healthcare sector as a new, fourth core in-

the importance of the ASB companies? The ASB

dustry group. Already today, Panalpina is a highly re-

companies’ share of the Group's total output grew

garded service provider for the pharmaceutical industry

steadily during the year under review. Today they con-

in various markets. We are confident of our ability to

trol over 70% of cargo volume in the airfreight and

significantly increase our market share with our newly

oceanfreight segments. Concentrating on a few high-

created specialized units.

performance core carriers brings advantages in cap-

The four defined groups represent an ideal mix. They provide optimum utilization of our global network and

acity procurement and reduces transaction costs in the expensive booking and administrative processes.

protection against cyclical developments in each indi-

The in-house carriers have a clear mandate to purchase

vidual industry group.

and manage all capacity for the entire Panalpina Group,

We also have a moderate increase in net income

a process which will be completed by 2006.

thanks to the excellent financial result. Our financial

This bundling of all traffic flows is a necessary step

operations benefited from a continuing decline in in-

towards our goal of rationalizing forwarding processes

terest rates and professional foreign exchange man-

and establishes a clear separation of responsibilities

agement.

among purchasing, capacity management, sales and handling.

What challenges do you see for the Panalpina 08

Group in the future? Advancing globalization, but es-

What major investments did you realize in 2002,

pecially the accelerating pace of the markets, demands

and what do you have planned this year? True to

flexible and highly mobile logistics service providers.

our non-asset-based strategy, the lion’s share of invest-

The fact that the Panalpina Group is »asset-lean« pro-

ments again flowed into information technology last

vides a perfect framework. Our global network and effi-

year. In our newly developed support software for the

cient central capacity purchasing and management

ASB companies (AirWarder for ASB-Air and SeaWarder

system also contribute.

for ASB-Sea), we have modern tools which will be

The ongoing shift of production capacity in the cargogenerating industries, especially in Asia at present, is

extremely useful to the corporation in further developing our time-definite shipping strategies.

a vivid illustration of the agility required. Our disciplined

Computer hardware and software will remain the cen-

focus on core industry groups – and the selective

trepiece of our investment policy, as our clear focus on

approach in implementing complex logistical services

our established core business creates substantial syn-

that goes with it – helps to avoid risks and sudden

ergies and a high degree of stability for our IT systems.

downturns in revenues.

Despite your »non-asset« business model, you

How do you assess events for the current year?

have taken a stake in Luxair. What was the reason-

The new year began with many uncertainties, due both

ing behind this move? Our investment in Luxair is of a

to geopolitical events in the Middle East and to the per-

purely strategic nature. Luxair and Panalpina share over

sistent sluggishness of the global economy. Neverthe-

30 years of close cooperation in freight handling at

less, Panalpina stands on a solid foundation and pos-

Luxembourg airport. We consider it important to show

sesses a highly motivated staff and management team.

the flag here.

These two factors are a guarantee that the Group will

Our 12.1% stake gives us an opportunity to contribute the knowledge of market requirements that we have gained in our day-to-day operations to the process of shaping future development at the key Luxembourg airfreight hub. Furthermore, Luxair will also take over cargo handling at our Frankfurt hub at Cargo City Süd, which is presently under construction.

continue to accomplish difficult tasks in its usual professional style and will ensure that it is one of the first to benefit from any economic upturn.

Interview with the CFO

10

Interview with Roland Wider, CFO

What is your assessment of fiscal year 2002? We

reduced our average DSO by two days to an average

believe that matching the record result of 2001 in to-

of 40 days. We are also pursuing concrete goals in the

day's extremely tough economic climate is an out-

area of cash management. Our main objective is to

standing accomplishment. Although net revenue de-

pool liquidity – in other words, to concentrate it – and

creased by 3.8%, Group performance in terms of

to manage it centrally.

local currencies increased by 2.7%. Our operating result, which was 5.2% below that of the previous year, was offset by a good financial result, so that net inco-

What are your expectations for 2003? Despite the

me remained steady. Net liquidity increased further

difficult economic environment, we will continue to pur-

during this reporting year, and our self-financing ratio

sue our growth strategy systematically. I am confident

now comes to 50%.

that Panalpina’s market position will be strengthened further in 2003 and that our results will continue the successes of recent years. We have a very healthy

What are the main reasons for the good results in

balance sheet, a clear strategy geared to our core

2002? Our gross margin improved further. Our rigorous

competencies, and employees who are outstanding

cost management efforts are having an impact. Overall,

in terms of both motivation and professional qualifica-

costs were reduced by 2%, even though establishing

tions and are wholly committed to this strategy. In this

the regional management structure and a selective

way, we can focus totally on our customers and not

increase in the workforce (about 400 additional em-

be distracted by internal problems and uncertainties.

ployees in growth markets) generated substantial new

11

expenses. Lower depreciation and amortization, as well as the good financial result that I have already referred

Are any investments planned for 2003? Our largest

to, also contributed to this positive result.

capital expenditures will be focused on IT again this year. However, our growth strategy does not rule out making appropriate acquisitions either. Our extremely

In which areas has Panalpina focused its invest-

healthy financial position gives us a certain flexibility

ments? Aside from a strategic stake in Luxair, we

here.

mainly invested in the IT area. In the real estate field, we systematically implemented our »asset-lean« philosophy by selling an additional property used in our

How do you define your role as the Chief Financial

operations.

Officer? I believe it is important that CFOs, too, should become increasingly aware of their responsibilities to all stakeholders. They should act accordingly, present-

As the new CFO, what are your priorities in the

ing the enterprise’s financial situation both transparently

current fiscal year? One focus will be also to exploit

and accurately.

the advantages that we gain from our regionalized management structure in the financial area and work closer to the market. Another focus for us continues, of course, to be accounts-receivable management. This is by far the most important item on the balance sheet. It’s an area where we not only want to monitor credit risks but also decrease the average days sales outstanding (DSO). In the reporting year, we already

Questions to the CIO

What is the role of information technology in a global enterprise like Panalpina? Our primary business activity is transporting goods – in other words, organizing, executing and tracking the flow of goods from customer to customer. However, today there is more than just a physical component to transporting cargo. Our customers expect us to support the transport processes with comprehensive data. In other words: Logistics services are highly dependent on information management and are inconceivable without commensurate IT know-how and supporting systems.

What determines how Corporate Information Technology is organized at Panalpina? The existence of the CIO position ensures that IT decisions are made at the highest management level and that they always take business considerations into account. The position also ensures that the IT perspective

12

Questions to Monika Ribar, CIO

is not missing from any strategically important group-wide decision. As CIO I am also responsible for making sure that the operational business and information technology do not »lead separate lives«, but ultimately pursue the same goals. The form that our organization takes is derived from the knowledge that true streamlining is not only achieved through the use of supporting software, but also – and primarily – through the use and improvement of the processes that underlie this software. Thus, at Panalpina, the CIO area not only includes IT but also the related process and project management as well as the delivery of management information systems. We have achieved good results with this organization. We use process alignment to improve the efficiency of our procedures and organizations, and by giving the appropriate IT support we are generating significant cost savings. In project management we take both business and IT factors into account in each and every project. By assigning the management of a project to a professional project manager, we separate the decision makers and the employees involved in the day-today business from the organizational procedure. They contribute their know-how and make content-related decisions; the project manager integrates them into the entire project. At the same time, the project manager serves as the interface between business and IT.

The transfer of data is an important part of the

You use the »best-in-class« system in the IT area.

entire supply chain. How is this transfer achieved

What does this mean? It means that we don’t have

in specific terms? Our global, backed-up data net-

to keep reinventing the wheel. Instead, we prefer to

work plays a central role. With it, we provide the ne-

work with first-class partners. The AirWarder project is

cessary business data to all Panalpina organizations

a good example. Working together with Lufthansa

and the clients. In coming years this network will be-

Systems, specialists at our in-house carrier ASB-Air

come vastly more important in two ways. One is

have developed a software product for capacity man-

that we will be able to process data centrally; the

agement and cargo handling. By using this product,

other is that the network will be our connection to the

we are able not only to optimize processes in airfreight

Internet world.

purchasing but also to supply booking information to our Panalpina processing systems on a real-time basis. There is also a corresponding product for ASB-Sea.

What is Panalpina doing in the Internet? A company like Panalpina cannot survive without e-business. During the past year we made very major commit-

What role does regionalization play in the CIO

ments in the area of customer information. The inter-

area? Regionalization has given us a lot more punch,

nal Panalpina Customer Order Management (COM)

especially in the process area, by allowing us to im-

system together with the customer-specific Track &

plement standardized processes much faster. In addi-

Trace tool »Intrac« and the public Web-based Track &

tion, regionalization brings us closer to customers, and

Trace system »Pantrace« are supporting the supply

we are supporting the resulting closer customer con-

chains of various customers with great success. Our

tact with a new SAP CRM system which allows our

e-portal, which we have implemented on a global

sales and marketing people to work more efficiently.

level, provides the link between the internal and the external world. It will function as the key technological thoroughfare for all further developments in the area

What’s in store this year? Parallel to regionalization,

of e-business. We can communicate with customers

we have implemented a separation of functions in

and partners via the Internet and can acquire data in

which capacity purchasing is mainly handled via in-

real time, which supports and greatly facilitates our

house carriers. This division of responsibilities is sup-

internal processes.

ported by systems that have been integrated into the Panalpina IT world. The AirWarder and SeaWarder products will go live this year and will contribute in a

The »Event and Alert« module has gone live at

big way to optimizing capacity utilization. At the same

Panalpina. You see this as a milestone. Why? First,

time, the demands placed on process management

expanding the functionality of our in-house order man-

are growing. The organizational change is having a

agement applications is an ongoing process. The

major impact on the process landscape, which must

»Event and Alert« module is a milestone in that it

now be modified.

greatly improves transparency, control and efficiency along the entire supply chain for all partners involved in the supply chain – i.e. both for our own employees and for the customers. Firstly, this application allows us to monitor and track all activities within the supply chain. Secondly, it allows automatic alerts as well as special proactive alerts to be sent out in accordance with the specifications and rules established for a specific project, so that the parties involved in a supply chain can be promptly informed of problems before they become critical. This year, we went live with this module on some major projects. Feedback from customers was consistently positive.

Another subject that is becoming increasingly important is data security. This applies equally to us and to our customers. We have therefore appointed a Security Officer at both the corporate and the IT level who will be dedicated exclusively to this area.

13

Panalpina's in-house carrier ASB-Air handles negotiations with the airlines. As a central purchaser of freight capacity for the Group, it develops airfreight charter operations on this basis. ASB-Air coordinates all the various traffic flows, ensuring that they are efficiently bundled and pass smoothly through all the interfaces. Shipments are handled via the global network of hubs and subhubs as well as through an efficient ground network providing regular services between the hubs and subhubs, which have been established in all major trading centers. While ASB-Air organizes the actual transportation services, Panalpina focuses exclusively on providing customers with local backup and keeping them fully informed about the Group's complete range of airfreight services.

Airfreight

Panalpina Regions AMEC AMERICAS APAC EUROPE

• »In recent years we have vigorously diversified into new regions and now possess a broad basis for further growth in the oil & gas business.« • »Our industry knowledge has made us a recognized partner of the oil & gas industry and helps maintain our excellent reputation.« • »We have already achieved a high level of growth in recent years, but there is still further potential.«

16

Growth in Oil & Gas Business

)) Questions to Jörg Eggenberger, Regional CEO, AMEC

Panalpina’s structure was reorganized on a regional

our excellent reputation. Our internal service providers

basis in 2002. What impact did this have on the

offer solutions that are tailor-made for our customers’

AMEC region? The new structure is an excellent fit for

needs through our global network of all-cargo aircraft

our business. AMEC is essentially built around the key

and air charters. Oil & gas cargoes are often oversized

oil & gas industry and is responsible globally for this

and very heavy, requiring special solutions. As a true

part of Panalpina’s business. Scheduled freight ser-

global player, we have strengths that not every com-

vices play a subordinate role in our case. By shifting

petitor can match. But our unique market position

central functions to the Regions, we have moved closer

didn’t just fall into our lap. We have invested heavily to

to our customers and can respond more quickly to

achieve it and will continue to do so. Not so much in

changes in the market. The new organizational struc-

hardware, but above all in manpower and know-how.

ture has taken effect very rapidly and is now helping

That applies especially to health, safety & environ-

to sustain our highly dynamic activities. Communica-

ment (HSE), which will be an ever more important

tion has been smooth from the very beginning. Still,

central element.

after just one year, it is too early to quantify efficiency improvements. Where will Panalpina be in the oil & gas field in three years? The oil & gas business won’t change How is Panalpina situated in the oil & gas busi-

fundamentally, but certain focal points will likely shift.

ness? We have a presence in all important markets,

As a region we are positioned to play a part regardless

from Sakhalin Island in the Russian Far East to Africa

of how things develop. We are flexible enough to re-

and Brazil. In recent years we have vigorously diversified

spond to changes and shifts in the markets. We have

into new regions and now possess a broad basis for

already achieved a high level of growth in recent years,

further growth in the oil & gas business. We are going

but there is still further potential. We will work to

beyond our existing focal points in Houston and West

strengthen the Asian business especially, where we

Africa and on to new regions such as Russia, the CIS

have some catching up to do. I anticipate double-digit

and Brazil. Furthermore, regional diversification reduces

growth in the AMEC Region over the next three years

our vulnerability to political and economic decisions in

and expect Panalpina to further expand its lead as a

any single region. After all, the oil & gas industry is one

forwarding logistics provider.

in which politics plays an especially important role.

What distinguishes Panalpina from the competition? At our Support Centers in Houston and Basel, from which we coordinate our services in the countries of West Africa, we have accumulated enormous expertise over decades, which our specialists and local employees are now transferring to new regions. Our industry knowledge has made us a recognized partner of the oil & gas industry and helps maintain

17

Panalpina Regions AMEC AMERICAS APAC EUROPE

)) Strong Growth Business with customers in the oil & gas industry again showed strong growth in the year under review. Net revenue for the AMEC Region, which manages Panalpina’s global oil & gas business, came to CHF 335 million. Gross profit came to CHF 132 million. Growth was generated in all regions. In our established markets in West Africa, expansion continued on a very profitable basis. In Nigeria and Angola we expanded our Port Agency, Husbandry Services and Crew Changes activities. We began building a new office and warehouse complex in late 2002 to manage our sharply increased business volume in Angola. Panalpina also strengthened its position in South Africa. Exports from South Africa as a gateway to such new markets as Nigeria and Angola increased noticeably. South Africa is increasingly becoming the sourcing country for these markets. Growth accelerated in the Central Asian Region as well. Logistics projects for petroleum extraction on Sakhalin Island in the Russian Far East are providing a strong impetus. Panalpina shipped over 135 000 tons of freight to the island in 2002. The Orlan drilling platform, weighing 59 000 tons and scheduled to begin operating in 2004, marks the next milestone in Panalpina’s logistical services in this region. We expect the importance of Sakhalin for 18

Panalpina to grow significantly in the years to come. ASB Oil & Gas will also be more active as a service provider in Central Asia and Russia in the future. During the year under review, we built up a global logistics network for one of the world’s leading petroleum industry service providers. Generally speaking, our focus is not primarily on the large transnational oil companies, but on their service providers and subcontractors.

)) One Face to the Customer Services for the global oil & gas industry have been part of Panalpina’s core business for many years. We have systematically built up the necessary infrastructure and employ an international team of specialists with intimate knowledge of the oil & gas business. Industry expertise paired with geographical presence, exceptional flexibility and fast response times are essential in this business. Every order is unique in its own way and requires tailored solutions. To serve our oil & gas customers even better, we have begun building a Key Account Management system. Besides several key individuals standing by to advise customers by region and line of business, we offer a contact person for important strategic and operational aspects. Account managers speak their customers’ language and know their organizational structure and specific business. Customer response has been encouraging. We are confident that the Key Account Management system will provide additional impetus for future growth.

)) Expanding »African Star« Globally supplying construction sites and extraction facilities is a complex process. The Oil & Gas organization relies on the transport network of in-house carriers ASB-Air and ASB-Sea in providing services. ASB-Air in particular is a key partner of the African Star combined air and sea service, which links oil & gas customers in coastal regions of West Africa with Panalpina’s worldwide airfreight network via its own hub in Luxembourg. A service was recently instituted to Malabo, capital and port city of Equatorial Guinea. In light of the growing importance of Central Asia, ASB-Air has established a new Luxembourg– Dubai–Bishkek route with onward distribution in Central Asia. In the maritime area, we will improve logistics for existing major customers in cooperation with capable partners. New, innovative solutions will be offered as part of a comprehensive strategy. Internal measures in the Oil & Gas organization aim to secure additional resources for supporting customers in special situations. We are simplifying and standardizing processes both administratively and operationally in every region and every segment of our range of services.

Panalpina Regions AMEC AMERICAS APAC EUROPE

• »In general Panalpina held its own well in the region.« • »The reorganization brings us closer to our customers, makes us more adaptable and generates economies of scale.« • »We think the transpacific routes and traffic within Latin America have the greatest potential.«

20

Two Subcontinents Under one Roof

)) Questions to Christian Ryser, Regional CEO, Americas

The Americas Region bundles together states that

national organizations, because of their strategic im-

differ widely in their economic, political and social

portance and the size of the business. The reorgan-

structures. How was Panalpina’s performance in

ization brings us closer to our customers, makes us

2002? We were certainly confronted by very mixed

more adaptable and generates economies of scale.

developments, some of them decidedly unfavorable. But in general Panalpina held its own well in the region. In the US, in spite of recessionary tendencies, we man-

How did the management structure in the Region

aged to achieve our targets by applying stringent cost

perform? There were only advantages. We fully inte-

management and concentrating on new business fields.

grated the North and South American organizations

We also made progress in Canada, where we broad-

under one roof, thus ensuring a unified approach to

ened our business base. Mexico posted outstanding

customers. We also identified synergies between dif-

results, while Central America did not come up to ex-

ferent cultures and languages. In the Region itself we

pectations. In Venezuela the political turmoil affected

formed three new areas in 2002 to bundle activities to-

every branch of the economy, the oil industry above all.

gether and use synergies to the full: »Middle America«,

Our Brazilian company embarked on a consolidation

»Andina« and »Mercosur«. We intend to standardize

phase after the headlong growth of recent years. In

processes, improve productivity and meet customer

Chile business was largely stable, while in Argentina

needs at the local, regional and global level.

and Uruguay the economy came to a virtual standstill

– so it’s all the more remarkable that Panalpina’s Argentinian earnings were among its best anywhere.

Where does the business focus of the Americas

Columbia, Peru and Ecuador posted excellent results,

Region lie? The Americas Region is a classic Panalpina

substantially ahead of target.

region, focusing on our core competencies of airfreight and seafreight with selected supply chain projects. A further strength is oil & gas, with the center in Houston.

Regional structures in Latin America have been reorganized. Why is that? We were faced by the strategic challenge of adapting the organization of our oper-

Where are the future growth areas for Panalpina

ating companies to far-reaching economic changes.

Americas? We think the transpacific routes and traffic

We operate in a region, whose development in 2002

within Latin America have the greatest potential. We

was influenced by major social, political and economic

will expand significantly in both fields.

unrest. We divided the national organizations into three large Areas. »Middle America« now includes Mexico as well as Central America, the »Andina« Area consists of Columbia, Peru and Ecuador, and the »Mercosur« Area comprises Argentina, Uruguay and Chile. Only Brazil and Venezuela are still managed as separate

21

Panalpina Regions AMEC AMERICAS APAC EUROPE

22

)) Two Subcontinents Under one Roof The Americas Region stretches from Canada in the north to Chile, the southernmost point of Latin America. Panalpina is represented by operating companies in 18 countries on the two continents. The Region is the Group's second-largest in terms of revenues. In the year under review, net revenue was CHF 1 704 million. Gross profit reached CHF 391 million.

)) Brisk Activity in the US and Canada The US company further increased the density of its airfreight network, also expanding overland transport in partnership with US transport company AIT Worldwide Logistics. Storage and distributive capacities in a number of branches were substantially increased to cope with future growth. Our own air- and seafreight activities in the US were further concentrated on the ASB companies. As part of this process our hubs in Huntsville, Los Angeles and Chicago were transferred to ASB-Air. Eastbound airfreight on the transpacific routes is already handled entirely by ASB-Air. The specialty segments Luxury Goods and Wine & Spirits are currently being proactively expanded jointly by the Americas and Europe Regions. During the year under review our Canadian company implemented a crossborder trucking program to gain a larger share of the high volume of goods exchanged between Canada and the US. Canada’s southern neighbor accounts for some 80% of its trade.

)) The New Middle America Area Panalpina Mexico achieved an excellent result. Besides substantially expanding our business with existing customers, we also added new ones. Import/export business between Mexico and the Far East and all the other Latin American countries rose sharply. However, business in Central America was below our expectations.

)) A Difficult Situation Mastered in the Mercosur Area Panalpina held its own in Argentina and Uruguay despite these countries' economic problems. In Argentina we even managed to increase business with a few of our major customers. In Chile we achieved a breakthrough, securing major contracts with two leading department-store chains. We have assigned specially trained staff to these customers.

)) Consolidation Phase in Brazil Following the headlong growth of recent years, Panalpina Brazil consolidated its infrastructure. We reorganized business processes and distribution units. Certain adaptations were also necessitated by altered economic circumstances – principally shifts in external trade. Export consignments significantly increased at the expense of imports. Panalpina Brazil derived substantial benefit from the boom in the oil & gas industry as well as from the expansion in vehicle exports to South Africa, the US and China. Panalpina Venezuela was hit by the adverse political and economic conditions. Freight volumes slumped by a quarter in the year under review. All routes were affected by the country's ailing foreign trade sector. 23

)) Successful Integration of the Andina Area We established a unified management for Panalpina companies in Colombia, Peru and Ecuador, combining all administrative processes. The new Area exceeded expectations in terms of earnings. Techint OCP (Oil) was an outstanding new project, while the Multimodule Transport Operation (MTO) Service in Colombia, which distributes goods arriving in three Colombian ports directly to their domestic destinations, is an ongoing success story. Business also benefited from the significant growth in these three countries’ exports of asparagus and flowers.

)) Mixed Developments in International Trade In spite of the difficult conditions in parts of Latin America, Panalpina recorded a slight increase in southbound freight from the US to Latin America. On transpacific routes, we are benefiting from the sharp increase in eastbound consignments from ports in the People’s Republic of China. All the companies in the Region anticipate double-digit growth for this oceanfreight in 2003. On the transatlantic routes, eastbound freight declined because of economic weakness in both the US and Europe, though westbound shipments were stable.

Panalpina Regions AMEC AMERICAS APAC EUROPE

• »We have achieved considerable growth in our markets and on our routes.« • »We will substantially strengthen our market position on the transpacific route.« • »Customer response has been entirely positive.«

24

Developing our Market Position in the Far East

)) Questions to Lars-Ola Gunnarsson, Regional CEO, APAC

The world economy was decidedly sluggish in

Have you seen any benefits yet during the year

2002. What conditions did you find in the Asia-

under review from the new regionalized manage-

Pacific Region, and how has Panalpina held up in

ment structure? Certainly. It has very quickly proven

this environment? The state of the economy in the

its worth. We know that we are still facing further major

region was much better than in the rest of the world.

changes in the markets. To be able to respond flexibly

Average growth was probably around 5.5%. Naturally

and appropriately, we need to get even closer to our

there were – and still are – significant differences from

customers. Establishing regional management struc-

country to country. Japan still finds itself in a recession-

tures provides an excellent basis for doing that. Cus-

ary trough, whereas the People’s Republic of China is

tomer response has been entirely positive.

booming. We have achieved considerable growth in our markets and on our routes. Our position in the region is outstanding, and we benefit from close rela-

Does the corporate-wide regionalization also en-

tionships with our global customers.

tail changes in management structures within the region? Yes it does. We have grouped some of the countries in the region into areas and developed a ma-

Can you name a few highlights? If we look at the

trix organizational structure. The goal is to strengthen

markets, the first to meet the eye is China. Our trans-

the infrastructure of our network in APAC by taking

port volume rose by 20% last year – rather remarkable

advantage of local synergies and establishing critical

in light of the flat world economy. China is increasingly

mass. This enables us to create local structures that

becoming the production base for major global brands.

mirror the business functions at regional level, thus en-

In recent years we have built up a dense network in

hancing operational excellence and customer satis-

China and achieved the flexibility to furnish transport

faction.

capacity even for goods from rapidly growing customers, especially in the high-tech and automotive industries. If we look at individual modes and routes, we

Will there be additional Areas? I wouldn’t exclude

have achieved 35% growth in oceanfreight and 15%

the possibility, but in establishing these three Areas we

in airfreight in Intra-Asian transport. On the transpacific

have bundled considerable synergies, and for now we

route, our eastbound oceanfreight, i.e. from Asia to

want to concentrate on taking advantage of those.

North America, has grown by 34% and airfreight by 56%. We will substantially strengthen our market position on this important route.

25

Panalpina Regions AMEC AMERICAS APAC EUROPE

)) Developing our Market Position in the Far East With activities in 17 countries of the Asia-Pacific region, Panalpina is increasingly involved in Intra-Asian exchange of goods and holds a strong position in the region’s external trade with North America, Europe, Africa and the Middle East. Global customers are primarily from the high-tech and automotive industries. In the year under review, the region benefited from relatively stable economic conditions. Net revenue amounted to CHF 536 million. Gross profit came to CHF 173 million.

)) Lively Activity in All Markets Developments in the Singapore, Malaysia and Indonesia markets, which are grouped in the new South East Asia Area, were better than expected. Through reorganization in the business units, we achieved an even tighter focus on our customers and business growth. Growth prospects in the Area over the next few years are strong. India being the key market in South Asia is growing in importance. During the year under review we increased the density of our network on the subcontinent and won customers in new industries. We have also established strong positions in Sri Lanka, Bangladesh and Pakistan. In China 26

we are involved in our global customers’ intensified development of production and assembly networks. The economic development of the People’s Republic is getting a boost from the country’s opening for foreign investors and from the dismantling of trade barriers in the wake of accession to the WTO. Majority stakes in regional joint ventures in the forwarding sector are now permitted. Hong Kong and Taiwan with close links to China, benefiting from the market boom there, continue to offer exciting business opportunities. Despite its current weakness, Japan is still an important market for Panalpina. It is the world’s second-largest economy. Our presence also extends to Australia, New Zealand, Korea, Vietnam, Thailand and the Philippines. In the Philippines, we commenced operations during the year under review, with encouraging initial results.

)) Strong in the Air and on the Water Our tonnage shipped on the transpacific route during the year under review grew sharply, with the bulk of it moving eastward. Our oceanfreight volume from Asia to the United States alone rose by 60%. Growth for the US and Canada together came to 34%. We are reaping the benefits of growing US demand for imports from Asian countries where our operations are firmly anchored. Airfreight from Asia to the United States also grew

by an impressive 34%. The airfreight business benefited from the strikes at US west coast ports. We were able to assist customers’ through fixed chartered capacity. Strategically, we are increasingly focusing on Intra-Asian traffic. Although our market share remains relatively small, we are intensifying our sales activities and organizing capacity purchasing in close cooperation with our in-house carriers ASB-Air and ASB-Sea. Our oceanfreight volume in the region rose by 35% during the year under review and our airfreight by 15%.

)) Additional Business in New Segments In the Asia-Pacific region, as in the Panalpina Group as a whole, high-tech and automotive are the key industries. For oil & gas, we have built up a center of expertise in Singapore which should generate growth in this sector in years to come. China and India are important oil & gas markets. In India we have also taken positions in the garment and textile industry and in pharmaceuticals. The fashion, retail and fast moving consumer goods (FMCG) industries continue to be a high priority for the region. Furthermore, we are increasingly offering logistics services such as warehousing and distribution. We are extending these activities – which until now have been mainly concentrated in Singapore – to China, Hong Kong, India, Indonesia, Malaysia and the Philippines.

Successful project work hinges on flexibility and efficient decision-making processes. In this business, forwarding involves numerous types of consignments originating from and bound for various countries. Complex processes and diverse interfaces have to be managed and coordinated. Not only do many different modes of transport come into play, but bulky or oversize consignments are commonplace. As in previous years, numerous heavy loads were handled again in 2002 – by air, on the water and overland. Panalpina Group's global projects business, which is handled by ASB-PanProjects, encompasses both industrial and mining projects. In the Oil & Gas segment, the focus is on processing plants. The markets in which the ASB-Panprojects and Oil & Gas businesses operate overlap, the main focus being on the Middle East, Central Asia, Southeast Asia, South America, West and North Africa and East Russia.

Projects

Panalpina Regions AMEC AMERICAS APAC EUROPE

• »In current circumstances a harmonized presence in the market is important to our business.« • »While »one voice« may originally have been a slogan, it's now become reality.« • »Our clear objective remains what it has always been: Cost leadership.«

30

One Voice in Europe

)) Questions to Gustav Zschiesche, Regional CEO, Europe

Since the beginning of 2002, Panalpina’s national

What are the main focuses of the European orga-

operating companies have been managed by four

nization? What are its strengths? Within the new

regional centers. One of the most important eco-

structure we initiated a number of important strategic

nomic regions is Europe. What effects has regiona-

projects in 2002 which have now been largely com-

lization had? First and foremost this was a response

pleted. They concentrated on identifying and exploiting

to changes on the part of our globally active custom-

existing potential synergies. On this basis we have been

ers, most of whom already have regional structures. It

able systematically, efficiently and professionally to

enables us to get closer to our customers, to develop

develop and implement a strategic European model.

focused, integrated solutions faster and implement them as added value.

Our clear objective remains what it has always been: Cost leadership. In this we are assisted by our particu-

We have to realize the importance that our customers

lar strength: Our methodical, optimized bundling of air-

attach to direct contact with us. In current circumstan-

freight and seafreight flows. Here we exclusively use

ces a harmonized presence in the market is important

the services of our tried-and-tested in-house carriers

to our business.

ASB-Air and ASB-Sea, and we will continue to do so

The new structure has also proved valuable in helping

in the medium term.

us to implement our Group strategies. Organizational

It’s wonderfully refreshing to experience the team spirit

structures have become leaner, and core processes

and the professional attitude of the entire Panalpina

can be standardized much faster in a regional than in

Europe team in practice. While »one voice« may origin-

a decentralized organization.

ally have been a slogan, it's now become reality. At Panalpina Europe we live it every day.

31

Panalpina Regions AMEC AMERICAS APAC EUROPE

)) Operating in 17 Countries The Europe Region comprises operating companies in 17 countries that are grouped into ten organization units. These units are not only active in the present member states of the EFTA and the European Union but are also already operating in the candidate countries so that we are well positioned for the future. Our achievements in Hungary, the Czech Republic, Poland and other emerging markets are already greatly valued by our international clientele. Europe is easily the Panalpina Group’s most important Region in terms of revenues. Net revenues in the year under review totaled CHF 2 604 million. Gross profit amounted to CHF 547 million. In line with Group strategy we are focusing on the continued expansion of our core competencies: Airfreight, seafreight and logistics services. These are supplemented by other market segments with particular importance for Europe, such as Wine & Spirits and Luxury and Consumer Goods. In these specialty segments we are operating with great success in partnership with other Panalpina Regions. High-end fashion logistics, for example, under the leadership of Panalpina Lugano, has drawn up and implemented 32

customer-specific services worldwide.

)) Unified Strategies None of this, of course, can be achieved without unified processes. The objectives of the business plans alone require a common, structured approach if they are to be successful. Highly advanced concepts have been developed and established in the areas of sales and marketing, logistics, legal and human resources. Integration is part of a plan that is being implemented for the entire Region. The standardization of core processes – a central element of our adjustment, as I have already mentioned – was a major factor in all our efforts to achieve uniformity. We were guided by the principle of selecting best-practice models. In practice, implementation in Germany, Switzerland and the Netherlands is already at an advanced stage. Our activities in Iberia, France, Scandinavia and the UK are moving in the same direction. We hope to achieve this objective for all country groups, i.e. for the whole of Europe, by the end of 2004. The systematic implementation of these projects will enable us to continue meeting all our customers’ requirements in future.

)) Pulling Together with the ASB Companies In collaboration with the ASB companies we have proceeded with the implementation of the time-definite concept for airfreight and of ISS (Integrated Seafreight Solutions) for seafreight. Innovative IT applications such as AirWarder and SeaWarder are helping to optimize internal processes within the Panalpina Group, and will enable us to make all our activities even more customer-centered in the future than they have been in the past. Here, too, the human being – and hence the many years’ experience of our staff and customers – is at center stage. They will make compelling use of the opportunities offered by these new tools. Our existing airfreight hubs in Paris and Frankfurt have been further developed and expanded while sub-hubs have been set up in Lyon, Linz and Barcelona. We have established competence centers for air- and seafreight in the Region's markets in order to reinforce and improve collaboration with the ASB companies. In addition a program to optimize our ground network has been initiated. Once more the aim is to make the most of the huge potential synergies within Panalpina Europe in order to achieve a further improvement in the quality of our services.

)) Uncertainties Remain We are unlikely to see any substantial improvement in Europe’s economic performance in 2003. The markets are still dominated by uncertainty and volatility. The European economies in general are suffering from a downturn in capital spending, slack private consumption, rising unemployment and growing budget deficits, while exports have been hit by the weak dollar.

Panalpina Business Areas Airfreight Seafreight Global Accounts/ Logistics Projects

34

Expansion in a Difficult Environment

35

Great uncertainty and general stagnation characterized international airfreight markets in the year under review. There were serious imbalances on individual routes, leading to considerable deviations in the price structure. On the North Atlantic route, business from Europe was brisk, while business from the US was very weak. The transpacific route saw a considerable increase in demand. Panalpina held up well in this difficult environment and continued the expansion of recent years. We managed to keep up with the rapidly changing market circumstances through targeted purchasing of capacity, with a focus on developing traffic between Asia and North America. Through systematic marketing of transpacific routes we achieved a 50% increase in volume shipped. Panalpina will establish itself as an important partner on the transpacific route in the medium term. The charter business has developed very successfully. ASB-Air’s charter organization has a worldwide presence with optimum coverage for all time zones – thanks to its bases in Europe, the United States and Hong Kong.

)) A New Role for ASB-Air The year 2002 saw a reassignment of roles between Panalpina and ASB-Air. Under the new strategy, ASB-Air will control all Panalpina airfreight by 2006, becoming the airfreight Competence Center through which everything – processes, IT, negotiations with airlines – will be handled. We are undergoing a transformation from freight capacity provider to general contractor for Panalpina’s airfreight capacity. We purchase the complete capacity

Panalpina Business Areas Airfreight Seafreight Global Accounts/ Logistics Projects

mix and offer it to the organization. In doing so we work with commercial carriers and also take charge of lower-deck capacity. This represents a momentous change in our strategy: In the past we concentrated almost exclusively on main-deck capacity. A good half of all freight dispatched by Panalpina worldwide was already transported via capacity provided or purchased by ASB-Air in 2002. This percentage will continue to rise in the years to come. The elements of the Group’s new airfreight strategy are clearly defined. Panalpina deals with customers and dispatches freight, while ASB-Air takes charge of all flight-related transportation tasks. As part of this reassignment of roles, we have assumed control of the Paris, Chicago and Huntsville/Alabama hubs as well as the one under construction in Frankfurt. In the medium term the Luxembourg, Paris and Frankfurt hubs will be equally important. Each location has identical functions and is of equal significance for the Group. We are also planning new bases in Singapore and Bangkok.

)) Panalpina’s Time-Definite Airfreight Strategy Today’s customers demand clearly defined service levels and increasingly leave the decisions to the logistics service provider. The key objective is to have a clearly defined time frame for freight delivery. A consignment 36

need not necessarily be shipped by the fastest possible means, but must always arrive by the agreed time. In the future, Panalpina will in most cases offer a delivery time commitment rather than book a specific flight. Of course, customers will still be able to choose preferred carriers. The fundamental service sold by Panalpina will be time-definite airfreight. ASB-Air as operator will have no direct customer contact. Providing a time-definite service model requires a functioning IT system to support our processes. The IT system we are developing for this purpose is called AirWarder. AirWarder represents a milestone in the implementation of the time-definite airfreight strategy. For the first time, our IT resources will give us the ability to monitor the capacity of different hubs simultaneously and implement a multi-hub system.

)) Developing Ground Network The planned accelerated development of the time-definite airfreight product also entails a massive expansion of our trucking network. The focus is on developing scheduled ground shipping capabilities for deliveries to and from the airfreight hubs, primarily in France, Italy and Spain. In Spain we have already established multiple daily connections from Barcelona to Luxembourg and Lyon which have been well-received by customers.

In the United States, we are building a new ground network in cooperation with our US strategic partner, AIT Worldwide Logistics. An initial link between Huntsville and Houston has been successfully launched. Blanket rollouts for all hubs are planned for 2003, enabling effective feeder and de-feeder services. Forwarding company AIT is our exclusive road feeder service provider in the United States.

)) Regionalization a Success Regionalization has brought ASB-Air enormous advantages in the shaping of future structures. We now have only four contacts to deal with in designing our networks. Previously we had to negotiate directly with each individual country. For implementation, on the other hand, we still require direct contact with each country, as local conditions vary greatly from one country to another.

)) Striving for Ubiquity Further increasing the density of our network is our most important task for 2003, especially in Asia. We must be represented by our own units in Singapore and Bangkok and offer the same services as in Europe and the United States. Ubiquity is a prerequisite for assuming worldwide responsibility for Panalpina’s airfreight operations. The rollout of the AirWarder IT application marks a step into the future, bringing standardization of internal and external processes and improved forwarding quality. AirWarder enables us to handle growing freight volumes while holding cost levels steady. By simplifying the interfaces with our vendors, we capture synergies and achieve a positive effect on the cost side.

)) 30 Years of ASB-Air ASB-Air’s predecessor Air Sea Broker was founded in November 1973. Over 30 years of continuous development work went into Panalpina’s airfreight concept. Global networks are not thrown together overnight – they are the fruit of many years of accumulated expertise in the enterprise.

Panalpina Business Areas Airfreight Seafreight Global Accounts/ Logistics Projects

38

Defying the Stormy Seas

39

International seafreight operators faced a difficult operating environment in 2002. Not only did a weak economy in America, Europe and Asia keep a damper on world trade, extreme imbalances on individual routes also proved a major challenge. Capacity planning and utilization were hampered by uneven freight flows. This was especially true for Asian traffic to North America and Europe. The growth trend in Asian exports is disproportionately large, whereas imports from the United States and Europe are expanding at a more leisurely rate. Panalpina did well despite these difficult circumstances. Seafreight volume grew by some 16% to 640 000 TEU. Since worldwide cargo volume grew by only 6%, Panalpina’s growth was again significantly stronger than that of the market as a whole.

)) Asia as an Engine of Growth Asia-Pacific (APAC) overtook Europe as top region in Panalpina export cargo volume for the first time. Transport volume in the region rose by 24% to some 210 000 TEU. The People’s Republic of China played the dominant role, accounting for two-thirds of total cargo volume. During peak periods China shipped over 3 000 TEU per week.

Panalpina Business Areas Airfreight Seafreight Global Accounts/ Logistics Projects

40

Asia-Europe remains the route with the heaviest traffic for Panalpina. Volume rose by 21% in all, with exports from Asia to Europe increasing by 26% and eastbound traffic rising by 14%. On these routes, too, China was the most important trading partner. Growth rates well above the market were achieved thanks to our flexible capacity management system, which is supported by close relations with a broad range of shipping agents. Within our total carrier portfolio, ASB-Sea was able to offer container slots even on fully booked routes. With freight volume up by nearly 30%, we achieved outstanding growth in traffic from Asia to the United States and Canada. Some ships bound for the United States were 20–30% overbooked in anticipation of the strike on the US West Coast. In times of capacity shortage we were able to fall back on our long-term partnerships with shipping agents, who furnished us with additional space and equipment for serving existing and new customers. Exports from the European region grew by 10% while westbound transatlantic freight volumes grew by a good 8%. Seafreight in the Americas Region contracted. US exports were weak, and trade with South America suffered from economic and political turbulence.

The AMEC Region saw major corporate changes. In South Africa, Safcor Panalpina and Renfreight merged their businesses, enabling us to offer one-stop shopping for a complete range of services to our customers there. Renfreight has been Panalpina’s official agent since March 2001.

)) In the Service of the Group as a Whole The year under review was dominated for ASB-Sea by two far-reaching Panalpina Group decisions. First, regionalization of the corporate management structure proved very helpful in the realization of important projects. Chains of command for countries of the region converge in one center and have become shorter for us. One important project is the establishment of the first Seafreight Service Center (SSC) in Bremen, which oversees westbound transatlantic traffic. We will set up further SSCs in France and Italy this year. In the medium term, we will launch SSC projects in all of our important markets worldwide. Second, as with ASB-Air, the division of roles between ASB-Sea and Panalpina was redefined. Our long-term goal in implementing the Integrated Seafreight Solutions (ISS) project is to strengthen our position in the seafreight business by controlling every link of the logistics chain and thus improve the productivity of our global handling processes. By 2006 ASB-Sea will be the Panalpina Group’s exclusive in-house carrier. The ISS project involves developing compelling seafreight products for our customers, standardizing and integrating all transport processes, and developing and implementing an IT system to support these processes. Project groups are working on the associated SeaWarder IT system, which will enable efficient booking processes via INTTRA, an Internet platform for direct data exchange, as well as direct links to strategic partners.

)) Door-to-Door Service Starting in Germany as part of the ISS project, we launched ASB Intermodal Services during the year under review, providing »door-to-door« delivery of container freight using all relevant modes of transportation. The core element is the bundling of activities to provide capacity. The declared goal is to create integrated, intermodal logistics solutions.

)) Above-Average Growth Expected Our plans, in close consultation with the regions, call for above-market growth to continue in 2003. Asian export traffic to Europe, the United States and Canada continues to show great potential, as does the intra-Asian market. Capacity bottlenecks are anticipated in 2003, especially in the traditionally strong second half of the year. Our comprehensive capacity management processes will bring us a clear competitive advantage in this respect, to the benefit of our customers. Overall, we look ahead to the coming year with confidence, particularly as worldwide container traffic is expected to grow by 6–7%, according to Drewry Shipping Consultants.

41

Seafreight

Panalpina is one of the world's leading providers of intercontinental seafreight services. ASB-Sea acts as the Group's in-house carrier, a role which is being steadily expanded. Within the Integrated Seafreight Solutions project, ASB-Sea has devised attractive oceanfreight products and is standardizing and integrating all processes as well as developing and implementing the necessary IT backup solutions. ASB-Sea also functions as a centralized purchasing organization for seafreight capacity, ensuring that capacity is available wherever the customers need it. In line with its proven »best-in-class« system, ASB-Sea works together with selected core carriers. Through its subsidiary Pantainer Express Line, Panalpina operates as a Non Vessel Operating Common Carrier (NVOCC), offering seamless groupage services that it controls from door-to-door. To ensure that consignments are efficiently bundled, Panalpina has set up a number of dedicated hub centers at major ports.

Panalpina Business Areas Airfreight Seafreight Global Accounts/ Logistics Projects

44

Tour de Force

45

Despite an extremely different operating environment, the Global Accounts/Logistics division recorded growth well above par for the market in 2002. The acquisition of new clients and expansion of existing business offset the decline in other segments. The adopted strategy proved highly successful, and the considerable resources invested by Panalpina in 2000 and 2001 in process refinement, key account structures and product range are now paying dividends.

)) Regional Know-How Pool We pursue a global strategy in a number of defined sectors – namely high-tech, automotive and, since 2003, pharmaceuticals/healthcare. This strategy provides for a centralized structure, with regionally based Key Account Managers reporting to head office. Panalpina currently handles 20 Global Accounts which meet three main criteria: Implementation of worldwide, centralized supply chain management and purchasing; operation on at least three continents; and an acceptable level of profitability for Panalpina. Potential Global Accounts are identified by means of target lists drawn up from detailed market analyses. The target lists are used by the Global Sales Managers for worldwide procurement. Any newly acquired client meeting the targets duly becomes an active Global Account overseen by a Key Account Manager. Over 50 employees in various capacities are involved in Key Account Management.

Panalpina Business Areas Airfreight Seafreight Global Accounts/ Logistics Projects

Panalpina's competence centers, which pool know-how on a regional basis, are a further plank in the Group's strategy. Corporate expertise is consolidated, expanded and made available to the entire organization, including the operational units. Industrial know-how is also exploited in optimizing IT and infrastructure. All measures are geared to the enhancement of client satisfaction. The competence centers are virtual groups comprising Key Account Managers and staff from operations and marketing departments. Conference calls and workshops are arranged to share experience and develop joint solutions. During the reporting year, Panalpina drew up a three-year strategic business plan with a strength/weakness profile for all its Global Accounts. This will enable Panalpina to boost performance in accordance with the specific needs of each client.

)) Focus on Core Logistical Activities Specialists from our Logistics Competence Centers create and implement tailor-made solutions for the Supply Chain Management of customers in the defined industry sectors. 46

This clear focus synchronized with our core business, international air- and seafreight, creates real value-added for customers and reduces costs and risks of implementing complex solutions.

)) First-Rate Communication Quality assurance enjoys a high priority. Traffic controllers enable us to monitor both data quality and day-to-day performance. Panalpina is permanently aware of any bottlenecks and potential difficulties and is able to take swift corrective action, both internally and externally. This includes optimization of the interfaces with in-house carriers ASB-Air and ASB-Sea. We are self-critical in the assessment of our services and procedures and forthright in our presentation of these to clients. This promotes mutual trust and strengthens our resolve to boost performance. Clients appreciate a smooth flow of information at all times, and not only when the news is good. We attach particular value to high standards of communication and are convinced that these enhance overall product quality. As part of its quality assurance scheme, Panalpina has in recent months revised and partly redefined its standard operating procedures. The focus is on the optimization of processes and interfaces and on purchasing policies for carrier capacity. Panalpina is implementing a number of operational refinements along with measures to improve loss prevention – a particularly critical issue for our high-tech clients. The claims ratio track record at Global Accounts is above the industry average.

)) Benchmark for Tender Management In the regions Europe, Americas and APAC, we have set up tender management teams whose activities are coordinated by the Group head office. Close collaboration with regional staff has resulted in considerable advances in process optimization over the past year. We have launched a new Web technology to assist the tender process. Close coordination with the regional organizations in matters of rate negotiation allows Panalpina to optimize interfaces with the ASB companies and external partners. One major carrier has now acknowledged the company as its benchmark in the fields of tender management and Key Account Management.

)) First-Class Performance for all Panalpina has set itself two key objectives for the business year 2003. First, we plan to expand our Key Account Management system to enable all classes of client to profit from our experience and methodology. We are chiefly targeting the small and medium-sized enterprises among our clients that are served at branch level. The aim is ensure that the

insights gained at a global level, along with the related processes and products, are exploited to the benefit of all our clients. Panalpina's consultants will be obliged to provide the same quality for smaller clients as a Key Account Manager does for a Global Account. Our annual key account seminars are geared to securing top quality at all levels. These seminars ensure that employees are well-versed in all important aspects of contemporary business. The courses cover, among other things, legal services, finance, contract negotiation and operational quality assurance. Panalpina's second goal is top-line growth. We are seeking to generate additional turnover through carefully targeted sales strategies.

Panalpina Business Areas Airfreight Seafreight Global Accounts/ Logistics Projects

48

Project Business Restructured

49

The Panalpina Group’s Projects business, which handles major forwarding projects for the industrial and mining sectors, was restructured at the beginning of 2002. Within the Panalpina Group, the ASB-Panprojects division belongs to the AMEC Region. ASBPanprojects’ markets are largely the same as those for Oil & Gas. Our special focus is on the Middle East, Central Asia, Southeast Asia, South America, West and North Africa and East Russia. The establishment of ASB-Panprojects as a centrally managed, autonomous profit center within the Panalpina Group is largely complete. The organizational changes have been implemented and a great deal of progress has been made in fine-tuning the various units. Among other things this has involved knowledge transfer along with short-term exchange of personnel. Experienced specialists have been brought in to reinforce the management teams in the UK and at Houston/Texas.

Panalpina Business Areas Airfreight Seafreight Global Accounts/ Logistics Projects

)) Close Cooperation: Panalpina Oil & Gas Upstream – ASB-Panprojects Downstream The new structure is better suited to the demands of the project business. Shorter and faster decision-making processes have made us more flexible and hard-hitting. Agility is essential in the project business. Shipments consist of a large number of different consignments from multiple countries. Complex processes with different interfaces must be mastered and coordinated. By concentrating on ASB-Panprojects we enhance our competitiveness against specialized niche logistics firms in our markets. The Panalpina Group stands behind us with its financial and operational strength, and we also benefit from close cooperation with Panalpina Oil & Gas, which has offered services in the exploration and extraction (i.e. upstream) fields for over 50 years. Our project business in the oil & gas business is largely concentrated on facilities for downstream processing. We exploit synergies through cooperation with the global Oil & Gas Key Account Management organization. Growing global alliances with major international customers such as J. Ray McDermott and Dow Chemical are becoming increasingly important to our business. We also profit from the central capacity management organizations of ASB-Air and ASB-Sea. Our projects involve different modes of transportation, and in many cases our 50

cargoes are heavy and unwieldy. Our Heavy Lift & Marine Division shipped numerous heavy loads by air and water during the year under review.

)) Favorable Market Conditions The Oil & Gas and Mining markets are expanding and are counter-cyclical compared to consumer goods markets. Against a background of weak global capital markets, investments in industrial projects and infrastructure have increased sharply. Ever-climbing oil prices and the high price of gold have especially favored investment decisions in oil & gas and in mining. ASB-Panprojects launched a number of large projects during the year of this report. We see rising worldwide market potential in the floating, production, storage and offloading (FPSO) business. Here, too, we work closely with Panalpina Oil & Gas. Unlike the oil & gas downstream and mining markets, the power plant market is currently weak. Many investments have been postponed or cancelled. The market is beset by problems connected to the collapse of major players.

)) Course Set for Continued Growth The reorganization of ASB-Panprojects has been well received by our customers. We are continuing our efforts to position ASB-Panprojects as a globally recognized project forwarder. We will reinforce our presence in strategically important markets and expand our customer base. Continual broadening of our horizon – by which we mean accumulating even more knowledge, expertise and social skills – is a high priority. Health, Safety & Environment (HSE) are also of key importance. We have developed HSE programs which we are currently implementing at all stations. Our expectations for fiscal year 2003 are based on further rapid growth in the business. New segments such as wind power will join our traditional markets. In the downstream oil & gas field, demand remains high for Liquid Natural Gas (LNG) and Liquid Petroleum Gas (LPG) production facilities. »Clean fuels« and »gas to liquid« (GTL) represent a promising new market.

Logistics Solutions

In its Global Accounts business, Panalpina focuses apart from Oil & Gas on the three core industries high-tech, automotive and healthcare. The Key Account Managers work in the various regions, thus providing customers with local support. In accordance with the Group's global strategy, however, they report to head office. Panalpina currently has a portfolio of 20 Global Accounts, all of which generate freight flows on at least three continents. In conjunction with airfreight and seafreight services, Panalpina develops and offers tailormade logistics solutions for its customers in the defined key industries. Close cooperation and coordination with the regions results in smoothly functioning interfaces both to the ASB companies and to the external partners.

Human Resources

54

Regionalization: A Milestone for the Group

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Panalpina has a uniform human resources policy that incorporates regional and local circumstances and takes due account of cultural and ethical differences. The new regional Group structure is a milestone for Human Resources. The establishment of HR managers in the various regions is in line with our international mandate. We operate in markets that have different cultures, mentalities and languages, as well as different time and climatic zones. Our regionalized Human Resources organization ensures that our HR policies are implemented and practiced in all parts of the organization.

)) A Broad Area of Responsibility Our human resources policy responsibilities and activities in a region are consolidated in the hands of the newly named regional HR managers. Their responsibility covers a broad sweep of activities: They coordinate group-wide projects in the area of Human Resources with local programs. Working together with Human Resources managers in the individual countries, they set milestones for human resources development in line with the requirements of the entire region. They serve as interfaces for all regional projects and for the

Human Resources

data that are relevant to Human Resources policies in the region. They coordinate training activities and support the Regional CEOs in all human resources matters. They work with the regional business and budget planning departments, and they support group-wide measures.

)) We are all Panalpina During the past year we clearly structured and defined the individual aspects and processes of our Human Resources development policy. The processes have now been largely standardized, but the »planks« of the basic platform are broad enough to allow for regional differences. We take regional differences into account, but at the same time make sure that the basic principles are identical everywhere. It is important that a number of different »Panalpina Groups« does not develop under one Panalpina roof. Panalpina is a globally active company that has a uniform corporate culture, but that respects regional and local differences. Our corporate culture is the bond that holds us together. It is an important factor in Panalpina’s success. 56

Through annual HR meetings we maintain intensive and regular communication with individual Human Resources Managers. We decide on joint approaches and coordinate the individual steps of the actions that we are taking. The communication process is supported by an activity-reporting system that we implemented last year. The Human Resources managers ensure that the principles and values of the Group are practiced at all levels. In this regard, we assist and support our line managers in their role as carriers of the corporate culture.

)) Seeking the Best In order to recruit good people, we – as an international company – need to be known in the market and to have an attractive image as an employer. This image has to be tailored to the regional markets. Our Human Resources marketing is therefore a regional concept and not a global one.

One important element of Human Resources policy is the PEAR (Panalpina Employee Assessment & Development Review) meetings held each year. In these meetings, achievements of the past year are evaluated and new goals are set for employees. We also obtain important knowledge about training and professional needs in the Group, and can implement appropriate measures. Another purpose of the PEAR meetings is to identify ambitious employees and reveal local and international development opportunities to them. In this way, we can bundle know-how, and Panalpina comes to be seen as an employer offering good career opportunities. Our Human Resources concept is pragmatic and is intended to provide a helpful service to our internal clientele. A main focus of our activities this year will be the further development of our PANACADEMY training and development program. This consolidates all activities relating to training and staff development, and is to be utilized by all employees as an additional global service.

Main offices worldwide

Algeria Hassi Messaoud

Colombia Barranquilla, Bogotá,

Angola Cabinda, Lobito, Luanda, Soyo

Buenaventura, Cali, Cartagena, Medellín, Pereira

Argentina Buenos Aires Australia Brisbane, Melbourne, Sydney Austria Graz, Hoechst, Innsbruck, Linz, Vienna

Azerbaijan Baku Bahrain Manama Bangladesh Dhaka

Congo Pointe-Noire Costa Rica

San José, Santa Maria

Czech Republic

Prague

Denmark Copenhagen Dominican Republic

Santo Domingo

Ecuador Guayaquil, Quito Egypt Cairo

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Main offices worldwide Belgium Antwerp, Brussels, Liège,

El Salvador

Voeren-Fouron

Equatorial Guinea

Brazil Campinas, Curitiba, Guarulhos,

San Salvador Malabo

Finland Helsinki

Manaus, Porto Alegre, Rio de Janeiro, Santos, São Paulo, Viracopos

Cameroon Douala

France Blois, Bordeaux, Le Havre, Lille, Lyon, Marseille, Metz, Montpellier, Muhlhouse, Nantes, Paris, Strasbourg,

Canada Calgary, Edmonton, Fort Erie,

Toulouse, Trappes

Kitchener, Mississauga (Toronto),

Gabon Libreville, Port Gentil

Montreal, Ottawa, Quebec, St. Laurent, Richmond, Surrey, Vancouver, Windsor,

Georgia Poti, Tbilisi

Winnipeg

Germany Bad Waldsee, Berlin, Bremen,

Chile Iquique, Santiago, Valparaíso

Cologne, Dresden, Düsseldorf, Frankfurt,

China Beijing, Chengdu, Dalian, Guangzhou, Haikou, Hong Kong, Macau,

Hagen, Hamburg, Hanover, Kassel, Kehl, Kiel, Leipzig, Ludwigshafen, Munich, Münster/Osnabrück, Nuremberg, Stuttgart

Nanjing, Ningbo, Qingdao, Shanghai, Shekou, Shenzhen, Suzhou, Tianjin,

Ghana Accra, Takoradi, Tema

Urumqi, Wuxi, Xiamen, Zhuhai

Hungary Budapest

India Ahmedabad, Bangalore, Chennai,

Singapore

Cochin, Coimbatore, Hyderabad, Kolkata,

South Africa

Mumbai, New Delhi, Pune

Indonesia Jakarta, Semarang,

Singapore Cape Town, Durban, East

London, Johannesburg, Port Elizabeth

Spain Barcelona, Bilbao, Madrid, Valencia

Surabaya

Ireland Dublin, Shannon Italy Biella, Bologna, Civitanova Marche,

Sri Lanka Sweden

Colombo

Gothenburg, Stockholm

Como, Florence, Genoa, Milan, Roma,

Switzerland

Turin, Vicenza

Lugano, St. Gallen, Zurich

Japan Nagoya, Osaka, Tokyo

Taiwan

Kazakhstan

Thailand

Aksai, Aktau, Aktobe,

Basel, Berne, Geneva,

Kaohsiung, Taichung, Taipei Bangkok, Laem Chabang

Almaty, Atyrau, Uralsk

Turkey

Korea Busan, Seoul

Turkmenistan

Kyrgyzstan Bishkek

United Arab Emirates (UAE)

Luxembourg Luxembourg

Sharjah

Malaysia Kuala Lumpur, Penang,

United Kingdom (UK)

Port Klang

Birmingham, Glasgow, London,

México Cancun, Guadalajara, Mérida, México City, Monterrey, Puebla, Tijuana

Istanbul, Izmir Ashgabad, Turkmenbashi Dubai,

Aberdeen,

Manchester, Prestwick

Ukraine

Borispol, Kiev, Odessa 59

Morocco Casablanca

United States of America (USA)

Netherlands Amsterdam, Eindhoven,

Anchorage, Atlanta, Austin, Baltimore,

Maastricht, Moerdijk, Rotterdam

Boston, Bradley/Hartford, Charleston, Charlotte, Chicago, Cincinnati, Cleveland,

New Zealand Nigeria

Auckland

Apapa (Lagos), Abuja, Kaduna,

Kano, Port Harcourt, Warri

Panamá

Columbus, Dallas, Denver, Detroit, El Paso, Greenville/Spartanburg, Houston, Huntsville, Indianapolis, Laredo, Los Angeles, Memphis, Miami, Milwaukee,

Colón, Panamá

Minneapolis, Morristown, Nashville, New

Peru Arequipa, Lima

Orleans, New York, Norfolk, Orlando,

Philippines

Philadelphia, Phoenix, Portland, Raleigh/

Manila

Durham, San Diego, San Francisco,

Portugal

Lisbon, Oporto

Puerto Rico

San José

Qatar Doha

Seattle, St. Louis, Tulsa, Washington/DC

Uruguay Montevideo Uzbekistan Tashkent

Russia Ekaterinburg, Moscow,

Venezuela

Nakhodka, Noyabrsk, Samara,

La Guaria, Maracaibo, Puerto Cabello,

St. Petersburg, Usinsk, Yuzhno-

Puerto La Cruz, Puerto Ordaz, San

Sakhalinsk

Antonio del Táchira, Valencia

Saudi Arabia Riyadh

Al Khobar, Jeddah,

Caracas, Maiquetía/

Vietnam Hanoi, Ho Chi Minh City

Panalpina World Transport (Holding) Ltd Viaduktstrasse 42 PO Box 4002 Basel/Switzerland Phone +41 (0)61 226 11 11 Fax

+41 (0)61 226 11 01

[email protected] www.panalpina.com

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The Panalpina Annual Report is published in German and English. For additional copies please refer to the above address or send an e-mail. An electronic version can be obtained at www.panalpina.com

Panalpina World Transport (Holding) Ltd Viaduktstrasse 42 PO Box 4002 Basel/Switzerland Phone +41 (0)61 2261111 Fax +41 (0)61 2261101 [email protected] www.panalpina.com