Air Cargo 101

Introduction to the Global Air Cargo Market

Agenda

• Air Cargo Industry Overview• U.S. Domestic Air Cargo Market• International Air Cargo Market• Industry Outlook

Air Cargo Industry Overview

Air Cargo Industry Overview

Air Freight

Mail

Express

Air Cargo Industry has three major segments – Air Freight, Express and Mail.

ServicesProviders

Integrators FedEx, UPS, DHL, TNT etc.

All Cargo Airline Polar, Nippon Cargo, Cargolux etc.

Combination Airline Korean Air, Cathay Pacific, Singapore Airline, Lufthansa, Air France, Japan Airline, British Airway, Delta, American Airline etc.

Freight Forwarders DHL Global Forwarding, Schenker, Kuehne Nagel, Aramex etc.

Postal Offices U.S. Postal, La Poste, Deutsche Post etc.

Top 30 Airlines Transport 75% of the World’s Air Freight

Systemwide scheduled

C – Passenger and freight operatorF – All-freight operatorI – Integrated services operator

Source: IATA and direct reports

130,776 FTKs

Represents 75% of world traffic

Rank Carrier (Millions FTK) 1. I– Federal Express (1) 14,408 2. I– United Parcel Service (4) 9,075 3. C– Korean Air (2) 8,072 4. C– Lufthansa (3) 7,680 5. C– Singapore (5) 7,603 6. C– Cathay Pacific (6) 6,458 7. C– China Airlines (7) 6,037 8. C– Air France (9) 5,532 9. C– EVA Air (8) 5,28510. F– Cargolux (12) 5,14911. C– JAL (10) 4,81712. C– British (11) 4,76713. C– KLM (13) 4,64614. C– Emirates (14) 4,19215. C– Northwest (15) 3,21016. C– Martinair (16) 3,02617. C– American (17) 2,90518. C– Air China (21) 2,71719. C– United (20) 2,64920. C– Malaysia (19) 2,57621. C– Asiana (18) 2,43322. F– Nippon Cargo (22) 2,41723. C– Qantas (25) 2,37124. C– China Cargo (23) 2,25025. C– Thai Airways (24) 2,00226. C– Delta (26) 1,76027. C– Lan Airlines (27) 1,75328. C– China Southern (28) 1,67229. C– All Nippon (30) 1,41830. C– Dragonair (35) 1,404

Busiest Air Freight Airports are concentrated in Europe, Asia and North America

1. Memphis (1) 3,592,570 2. Anchorage (3) 2,553,9373. Los Angeles (7) 1,858,2774. Louisville (10) 1,813,8595. Miami (12) 1,718,0766. New York –JFK (14) 1,585,2537. Chicago-O’Hare (16) 1,443,3488. Indianapolis (20) 979,0429. Newark (21) 868,26510. Atlanta (26) 725,44611. Oakland (28) 667,806

1. Frankfurt (6) 1,864,3982. Paris-CDG (11) 1,767,2603. Amsterdam (15) 1,449,8554. Heathrow (17) 1,305,9765. Luxembourg (24) 742,3426. Brussels (29) 654,316

1. Hong Kong (2) 3,402,247 2. Tokyo-Narita (4) 2,239,9303. Seoul-Incheon (5) 2,120,5424. Shanghai (8) 1,842,4745. Singapore (9) 1,833,7216. Taipei (13) 1,692,4477. Dubai (18) 1,281,0508. Bangkok (19) 1,130,2989. Osaka (22) 840,23510. Beijing (23) 782,06611. Guangzhou (25) 726,35612. Tokyo-Haneda (27) 672,46413. Kuala Lumpur (30) 653,654Source: Airports Council Int. 2005

North America

Europe

Asia( ) – World Ranking

Commercial Jet Freighter Fleet Summary (1559 Total Units)

BAe-146 707-320C

DC-9 DC-8

737 757-200

727 MD-80/-90

A320

Standard-body

(less than 45 tonnes)

Medium widebody

(40 to 75 tonnes)

Large widebody

(more than 75 tonnes)

DC-10-30/40

MD-11

747

777

A340

767

A300

A310

A330

L-1011

DC-10-10

A350

787

The Freighter Fleet Is Grouped Into Three Payload Size Categories

Source: ACMG, 2009

626 Units 440 Units 493 Units

* Excludes parked aircrafts.

U.S. Domestic Air Cargo Market

U.S. Domestic Air Cargo Revenue Share

Source: Air Cargo Management Group, 2009

• 2008 total Industry revenue is estimated to be $32B.

• FedEx and UPS together controlled 77% of the market in 2008. FedEx and UPS gained more market shares after DHL exit U.S. Domestic market in 2009.

FedEx, $14.2, 44%

UPS, $10.4, 33%

BAX, $0.7, 2%

USPS, $0.9, 3%

DHL, $2.4, 7%

Freight Forwarder, $0.9,

3%

All Cargo Airline, $0.8, 3%

Combination Airline, $1.6, 5%

U.S. Domestic Air Cargo Revenue Share ($billion, 2008)

U.S. Domestic Air Express Market

Source: ACMG estimates, 2009

FedEx2,52945%

UPS2,40142%

DHL4859%

Express Mail1853%

Other501%

U.S. Domestic Express Market ShareAverage Daily Volume (000, Q408)

• FedEx and UPS together controlled 87% of the U.S. Domestic Express market in 2008. FedEx and UPS gained more market shares after DHL exit U.S. Domestic market in 2009.

U.S. Domestic Express Shipment Growth

The 2008 shipment total is up only 19% from 1994. That increase reflects 6% growth per year between 1994-2002. The market size changed little from 2002 to 2007, before falling 14% in 2008.


Emerging Trend in the U.S. Domestic Air Cargo Industry

• The integrated express carriers FedEx and UPS continue to dominate the U.S. market.• The U.S. domestic express market underwent dramatic changes near the end of 2008 in

response to DHL’s exit from U.S. domestic market. Both FedEx and UPS gained customers left by DHL.

• The U.S. Postal Service continues to be challenged by the falling demand for its services, including Express Mail and Priority Mail. A major change in postal regulations recently gives the USPS more flexibility to compete with private sector companies. The USPS alliance with FedEx that began in August 2001 remains in effect.

• Security issues continue to be the principal regulatory concern facing the industry. The main emphasis today for combination carriers is to achieve 100% screening of belly cargo by August, 2010.


International Air Cargo Market

Int’l Air Cargo TrendThe Int’l Air Cargo traffic had sharp decline during the recession

• Year 2009 ended to be the most difficult ever for the global air freight industry; Air freight showed a decline of nearly 15% (in FTK) compared to 2008. About 15% of the global fleet of freighter aircraft was taken out of service during the 2009 downturn;

• There are encouraging signs entering 2010 that a recovery is taking place, as traffic levels have rebounded from a low point in the first quarter of 2009. ACMG expects that air cargo traffic will grow 7%-10% in 2010, and there is a good chance that it will recover to the pre-recession peak by 2012.

Source: IATA Monthly Traffic Report.

Int’l Air Cargo Revenue ShareThree main types of companies involved in the market – express companies, airlines and forwarders.


• The total revenue for Int’l air freight and express is estimated at $87B in 2008. Industry wide revenues for 2009 are expected to drop at least 30% based on steep declines in both traffic and yields.

• Despite gains by the express companies, airlines and forwarders retain control of 65.2% of the revenue and 88.6% of the tonnage of air cargo handled in the international market.

Airlines, $41B, 47.60%

Express Carriers,

$30B,34.80%

Forwarders, $15B,

17.60%

Int'l Air Cargo Revenue Share

Int’l Air Cargo Market by Lane


• Int’l Air Cargo traffic is concentrated in four major lanes: Asia-North America, Asia-Europe, Europe-North America and intra Asia.

Int’l Air Express Market


DHL45723%

FedEx47524%UPS

50325%

TNT26913%

Postal1548%

Other1407%

Int'l Express Market ShareAverage Daily Volume (000)

•Definition: Cross-border time definite shipments accompanied by value added services such as tracking and money back guarantees.•FedEx, UPS, DHL and TNT are the four major service providers in the Int’l Air Express market.

International Air Express Shipment Growth

498,600

1,095,200

1,558,200

2,114,300 2,144,1001,996,900

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

1992 1997 2002 2007 2008 2009

Ave

rage

Dai

ly V

olum

e

The Int’l Air Express volume growth was steady and substantial from 1992 through 2007 (10% CAGR), followed by a slowdown in 2008 and significant 7% decline in 2009.


Emerging Trend in the Int’l Air Cargo Industry

• Express services are expected to continue growing faster than traditional air freight, which will result in a larger market share for Express in the future.

• Low cost airlines are taking more interest in air freight, a business opportunity they have largely ignored in the past.

• Airlines continue to establish broad alliances to extend their market reach and create global coverage.

• More open skies aviation pacts are signed and benefit the air cargo operation. U.S. leads the way in aviation treaty liberalization, with more than 90 open skies pacts. The most significant development on the horizon is Phase Two of the EU-U.S. open skies agreement.


Industry Outlook

Air Cargo Traffic Growth is Strongly Influenced by GDP Growth

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

1985 1990 1995 2000 2005

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

World RTKs

World GDP

RTKs annual growth, percentage GDP annual growth, percentage

Historically Air Cargo has Grown 2 Times Faster then GDP

Forces and Constraints for Air Cargo GrowthAlthough economic activity is the primary influence on world air cargo development, other factors must be considered.

Source: Boeing World Air Cargo Forecast 2008-2009 edition

World air cargo traffic is projected to triple over the next 20 years


Regional Air Cargo Market Forecast


Emerging Markets have Large Potentials for the Air Cargo Industry

Emerging markets are countries that are restructuring their economies and growing along market-oriented lines and offer a wealth of opportunities in trade, transportation, technology transfers, and foreign direct investment. They are fast growing economies, contributing a great deal to the world’s trade growth.

1% 3% 5% 7% 9% 11% 13%5%

10%

15%

20%

25%

30%

35%

Bahrain

Oman

UAE Saudi Arabia

Kuwait

Brazil

Russia

India China

Turkey

US

Germany Singapore

Korea

Mexico

Bulgaria

Romania

Poland

Hungary

Czech Republic

South Africa

Egypt

Thailand

Indonesia

Phillippines

Argentina

Malaysia

Vietnam

Japan UK Canada

GCC

Chile

Uruguay

GDP CAGR (2003-2007)

Mer

chan

dis

e T

rad

e C

AG

R (

2003

-200

7)

Emerging Markets

Worldwide freighter fleet is projected to double in the next 20 years, led by large freighters.


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Air Cargo 101