Eaton s Cargo Claims Program A Strategic, Value-Add Approach

1. Eaton’s Cargo Claims ProgramA Strategic, Value-Add Approach May 11, 2011

2. Thought we could just use this picture as a bit of an ICE breaker….My experience shows the audience LOVES really crazy cargo loss pictures. This begs the question…what would be the first thing you would do if you had cargo on here? We are going to take you on a claims journey….I will now turn it over to JenniferThought we could just use this picture as a bit of an ICE breaker….My experience shows the audience LOVES really crazy cargo loss pictures. This begs the question…what would be the first thing you would do if you had cargo on here? We are going to take you on a claims journey….I will now turn it over to Jennifer

3. Agenda – Gaining Visibility Corporate Overview Eaton’s cargo risk profile Analysis and Need for a solution Decision to outsource - RFP Process Challenges and Evolution Program performance & metrics From Decentralization to Globalization Think we need a catch phrase here. Turning claims into a strength How Eaton improved their supply chain and customer service with claims How claims data improved our company Jimmy Neutron?Think we need a catch phrase here. Turning claims into a strength How Eaton improved their supply chain and customer service with claims How claims data improved our company Jimmy Neutron?

4. Eaton Worldwide Eaton at a glance Global diversified industrial manufacturer, focusing on Power Management Established in 1911 by J.O. Eaton 2010 revenues of $13.7 billion Eaton has approximately 75,000 employees Eaton sells products to customers in more than 150 countries Chairman & CEO – Alexander M. Cutler

5. Eaton’s Sectors

6. Industrial Sector Was 6Was 6

7. Electrical Sector Was 7 Key Messages: Electrical Sector very global business today January announced an important transition – away from tech to global. All made possible by three large acquisitions (Moeller, Ptec, MGE OPS) Brought in talent and scale Will give an update on each of these segments a bit later. Was 7 Key Messages: Electrical Sector very global business today January announced an important transition – away from tech to global. All made possible by three large acquisitions (Moeller, Ptec, MGE OPS) Brought in talent and scale Will give an update on each of these segments a bit later.

8. The Eaton Business System Foundation for everything we do at Eaton Reason for our success and why the ECIB program exists Have a few words POP from this slide…this program allowed Eaton to improve in these areas and we are about to show you how. Jennifer to decide which ones….Foundation for everything we do at Eaton Reason for our success and why the ECIB program exists Have a few words POP from this slide…this program allowed Eaton to improve in these areas and we are about to show you how. Jennifer to decide which ones….

9. Why Focus on Cargo Claims? was 11was 11

10. Joint initiative between Risk Management and Logistics Decentralized claim handling processes and data No transparency No claims tracking or metric capability Inexperience and lack of time to resolve losses Partial recoveries Unreported claims Unrealized insurance recoveries Not a core competence No leverage Process inefficiencies Customer frustration and receivable write-offs Tangible/intangible costs Bottom line, we lacked global visibility Analysis of Current Process – Pre 2006 was 12 Joint initiative between logistics and Risk management As you probably know, both departments have a vested interest in cargo loss but yet sometimes it is unclear who has ownership for this responsibility. As we began exploring this we discovered a big need for improvement here. Some of the things we discovered were as listed here. So we decided to join forces to find and implement a solution that would benefit both departments and most importantly bring value to Eaton as a whole on a global basis. So we needed a solution that was scaleable around the world.was 12 Joint initiative between logistics and Risk management As you probably know, both departments have a vested interest in cargo loss but yet sometimes it is unclear who has ownership for this responsibility. As we began exploring this we discovered a big need for improvement here. Some of the things we discovered were as listed here. So we decided to join forces to find and implement a solution that would benefit both departments and most importantly bring value to Eaton as a whole on a global basis. So we needed a solution that was scaleable around the world.

11. Eaton’s Cargo Profile Large OEM customers or end users with their own cargo insurance programs Contractors, distributors and construction projects Electrical and Industrial Hydraulics markets 5 million shipments / year; 150,000 imports and exports for China / year 1 billion truck miles logged in the Americas region / year 700 carriers of all types used in the Americas 100 carriers of all types used in China 250 carriers of all types used in EMEA 100 warehouse operations worldwide Large and sophisticated Logistics Network - Internal, 3PLS, Direct service providers, freight forwarders and LLP Was 10 The 5M shipment count is probably an OK global number. Based on what we have information for and the purpose of this presentation it is a good approximation. For example, we do not have a good handle on APAC shipment count and select regions in the Americas such as Brazil and Latin America. Rather than show 5M outbound shipments, can you change this to read: 5M Eaton paid shipments per year. It probably does not matter if they are outbound or inbound. Rather than break out the type of shipments, can you reference that this includes all modes such as parcel, TL, LTL, expedite, ocean and air. Some general stats that you may want to use under the comment of a complex supply chain. Was 10 The 5M shipment count is probably an OK global number. Based on what we have information for and the purpose of this presentation it is a good approximation. For example, we do not have a good handle on APAC shipment count and select regions in the Americas such as Brazil and Latin America. Rather than show 5M outbound shipments, can you change this to read: 5M Eaton paid shipments per year. It probably does not matter if they are outbound or inbound. Rather than break out the type of shipments, can you reference that this includes all modes such as parcel, TL, LTL, expedite, ocean and air. Some general stats that you may want to use under the comment of a complex supply chain.

12. To create a centralized cargo claims administration function that will provide expert support, reduce Eaton’s risk of loss, and maximize claim recovery. How do we achieve this Outsource or service internally? Mission Statement Was 13 Was 13

13. Value of a Third Party Model Claims Management is an outsourced process that leverages the expertise of cargo claim professionals for: Reporting Resolution Recovery Visibility Analysis Allowed Eaton to Avoid purchasing software for non-core functions Avoid hiring / training claims staff Have existing staff focus on primary job functions Execute strategic direction to minimize transportation management complexity Given the audience I think this will be a good slide…Some of these people will not have even thought of outsourcing cargo claims. They will not even know this is an option, even though TPA’s commonly used in the insurance industry. You could say something like “while outsourcing is nothing new in the logistics or insurance industries, it is actually the norm in the insurance industry to outsource claims handling. While third party claims administrators have been around for decades for some lines of insurance there are not many that actually specialize in cargo claims. These are the considerations we used the evaluate the solution, - capabilities of the third party - benefits to Eaton This is the core compentance of a third party claims administrator They have the staff knowledge to deal with tough claims and get the most favorable resolution They have the systems to record the claims, make them visible over the web and do the KPI analysis NEW NOTE 4/28 Creates a standard process for the logistics function aligned with its strategic direction to minimize transportation management complexity. Given the audience I think this will be a good slide…Some of these people will not have even thought of outsourcing cargo claims. They will not even know this is an option, even though TPA’s commonly used in the insurance industry. You could say something like “while outsourcing is nothing new in the logistics or insurance industries, it is actually the norm in the insurance industry to outsource claims handling. While third party claims administrators have been around for decades for some lines of insurance there are not many that actually specialize in cargo claims. These are the considerations we used the evaluate the solution, - capabilities of the third party - benefits to Eaton This is the core compentance of a third party claims administrator They have the staff knowledge to deal with tough claims and get the most favorable resolution They have the systems to record the claims, make them visible over the web and do the KPI analysis NEW NOTE 4/28 Creates a standard process for the logistics function aligned with its strategic direction to minimize transportation management complexity.

14. Defined Scope – Physical loss or damage to goods in transit Global capabilities Identify candidates – selection of three Expeditors Cargo Insurance Brokers Inc. RECLAIM Crawford Request formal written proposal In person presentations Decision/Selection Evaluation process Cost plus pricing model selected Awarded to Expeditors Cargo Insurance Brokers Inc (ECIB). Don’t read these bulltes You could just breeze over this in 30 seconds saying We conducted a formal RFP process where 3 competitors were requested for a written proposal and presented in person. ECIB was awarded the business in 2006Don’t read these bulltes You could just breeze over this in 30 seconds saying We conducted a formal RFP process where 3 competitors were requested for a written proposal and presented in person. ECIB was awarded the business in 2006

15. Claim Process Flow MM – maybe a picture our flow chart – see email from MM AH – one-touch program, runs on its own. EVERY claim, cradle to grave. Receive First notice of EVERY cargo claim from all freight Carriers Handle claims coming from both Eaton and some Customers Facilitate documentation collection process File claims with freight carriers and insurance carriers Pursue freight carriers through to resolution Provide status updates to businesses and I&RM; Identify claim trends, process improvements and best practices Offer specialized call center support and expertise Insurance questions / claims questions / other transit issues Reconcile monthly lockbox payments with ledger codes to ensure credits go to correct locations Produce monthly balanced scorecard (BSC) MM – maybe a picture our flow chart – see email from MM AH – one-touch program, runs on its own. EVERY claim, cradle to grave. Receive First notice of EVERY cargo claim from all freight Carriers Handle claims coming from both Eaton and some Customers Facilitate documentation collection process File claims with freight carriers and insurance carriers Pursue freight carriers through to resolution Provide status updates to businesses and I&RM; Identify claim trends, process improvements and best practices Offer specialized call center support and expertise Insurance questions / claims questions / other transit issues Reconcile monthly lockbox payments with ledger codes to ensure credits go to correct locations Produce monthly balanced scorecard (BSC)

16. Program Evolution Staged deployment North America (July 2006) EU (January 2007) APAC (June 2008) Leveraged logistics community (approximately 250 key professionals around the world) and Expeditors International’s global network. Introduction and training of the program Webcasts In person Training CDs Recovery Lockbox established Expeditors assigns business ledger and has visibility into lockbox Updates claim database Monthly accounting entry Average between 80 and 100 recoveries monthly. Challenges Customer service team located in Seattle, Washington Cultural and language barriers Business resistance Use of 3PL and LLPs Collection of funds globally Staged deployment North America (July 2006) EU (January 2007) APAC (June 2008) Leveraged logistics community (approximately 250 key professionals around the world) and Expeditors International’s global network. Introduction and training of the program Webcasts In person Training CDs Recovery Lockbox established Expeditors assigns business ledger and has visibility into lockbox Updates claim database Monthly accounting entry Average between 80 and 100 recoveries monthly. Challenges Customer service team located in Seattle, Washington Cultural and language barriers Business resistance Use of 3PL and LLPs Collection of funds globally

17. Metrics – Claim Paid, Volume and Liability by Carrier You could say “Our logistics teams really love this data for a few reasons. During carrier review, we now have the data of how many claims there were, how much was paid and how quick they were paid. This is much better then having the carrier tell us how many claims we had with them. Let’s them know we are watching We can now do our own damage ratio by carrier. This data provides the numerator, then we apply the denominator of how many shipments to come up with the ratio. Then we can compare carriers and set goals for improvements with the carriers. Same as previous slide Gives our logistics team the knowledge on carrier performance regarding claims handling In some cases the carrier has paid more then their contracted liability limits – You could say “Our logistics teams really love this data for a few reasons. During carrier review, we now have the data of how many claims there were, how much was paid and how quick they were paid. This is much better then having the carrier tell us how many claims we had with them. Let’s them know we are watching We can now do our own damage ratio by carrier. This data provides the numerator, then we apply the denominator of how many shipments to come up with the ratio. Then we can compare carriers and set goals for improvements with the carriers. Same as previous slide Gives our logistics team the knowledge on carrier performance regarding claims handling In some cases the carrier has paid more then their contracted liability limits –

18. MM – why data from 2008? This slide looks squished MM – why data from 2008? This slide looks squished

19. This measurement allows us to see who is participating and who is not. Also allows us to identify who should probably have more claims based on the type of shipments or volume they have. Allows us to focus on finding more claims MM- same why 2008, not sure if this graph is the best This measurement allows us to see who is participating and who is not. Also allows us to identify who should probably have more claims based on the type of shipments or volume they have. Allows us to focus on finding more claims MM- same why 2008, not sure if this graph is the best

20. Metrics – Analysis of Loss by Cause Loss by commodity – emphasis training opportunities by location or customers that need additional training. Proper receiving and handlng of damaged goods.. Rolling out some internal training right now as a result of the data MM – need to get all graphs to be the same color. All blue, etc probably the Eaton color’s so it looks consistent.Loss by commodity – emphasis training opportunities by location or customers that need additional training. Proper receiving and handlng of damaged goods.. Rolling out some internal training right now as a result of the data MM – need to get all graphs to be the same color. All blue, etc probably the Eaton color’s so it looks consistent.

21. Metrics – Analysis of Loss by Commodity Loss by commodity – emphasis training opportunities by location or customers that need additional training. Proper receiving and handlng of damaged goods.. Rolling out some internal training right now as a result of the data MM – need to get all graphs to be the same color. All blue, etc probably the Eaton color’s so it looks consistent.Loss by commodity – emphasis training opportunities by location or customers that need additional training. Proper receiving and handlng of damaged goods.. Rolling out some internal training right now as a result of the data MM – need to get all graphs to be the same color. All blue, etc probably the Eaton color’s so it looks consistent.

22. Monthly Balanced Scorecard INSERT BALANCED SCORECARD SAMPLE You could say something like during our formal QBRs we get these detailed reports but we have recently evolved into a 2 page balanced scorecard format that is prepared on a monthly basis and give both Logistics and Risk Management a closer finger on the pulse of how the program and freight carriers are performing You could say something like during our formal QBRs we get these detailed reports but we have recently evolved into a 2 page balanced scorecard format that is prepared on a monthly basis and give both Logistics and Risk Management a closer finger on the pulse of how the program and freight carriers are performing

23. Examples of a few improvements that have been made via the program MM – possible picture here Examples of a few improvements that have been made via the program MM – possible picture here

24. The Eaton Business System Foundation for everything we do at Eaton Reason for our success and why the ECIB program exists Have a few words POP from this slide…this program allowed Eaton to improve in these areas and we are about to show you how. Jennifer to decide which ones….Foundation for everything we do at Eaton Reason for our success and why the ECIB program exists Have a few words POP from this slide…this program allowed Eaton to improve in these areas and we are about to show you how. Jennifer to decide which ones….

25. Questions MM – where and what will the questions be.MM – where and what will the questions be.