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Volumes increasing. Economy improving.Customer expectation higher than ever.
Air cargo connects people with goods quickly.
Keynote AddressTom Overacker
Executive Director Office of Field Operations, United States Customs & Border Protection
2017: Strongest Year
2017 was the strongest year for air
freight demand growth since 2010c
This is more than 2x faster
than global goods trade…
and 3x faster than capacity c
3 X Faster
.+ 9% 2 X Faster
Modernizing cargo
distribution
Capitalizing on e-commerce
Optimizing the end-to-end journey
Moving to data on-demand
Developing real-time
interaction
Making quality relevant
Making air cargo easier, smarter and faster
StB Cargo Programs
Two good years for cargo halt the relative decline
Source: IATA Economics using data from ICAO, IATA Statistics, CASS
6.0%
7.0%
8.0%
9.0%
10.0%
11.0%
12.0%
13.0%
14.0%
20
25
30
35
40
45
50
55
60
65
70
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
US$
bill
ion
Cargo revenue and share in total revenue
Cargo revenue
Cargo share in total airline revenue
+25%
1.0
1.2
1.4
1.6
1.8
2.0
2.2
2.4
2.6
2012 2013 2014 2015 2016 2017
US$ per kilo
Global air freight yield (incl. fuel and other surcharges)
Global air freight yield excl. fuel and other surcharges)
Dotted lines are seasonally adjusted
Helped by a substantial improvement in yields
Sources: IATA Economics using data from IATA CASS, IATA Monthly Statistics
And a much better utilization of assets
Sources: IATA Economics using data from Boeing, IATA Monthly Statistics
41%
42%
43%
44%
45%
46%
47%
9.5
10.0
10.5
11.0
11.5
2012 2013 2014 2015 2016 2017 2018
Average flight hours per day
Large widebody freighter aircraft utilization (LHS)
% of AFTKs (SA)
Industry-wide freight load factor (RHS)
As demand surged while capacity moderated
Source: IATA Economics using data from IATA Statistics
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
14%
2012 2013 2014 2015 2016 2017 2018
Growth in FTKs and AFTKs
FTKs
AFTKs
The cyclical upturn remains strong, in fact getting stronger
Sources: IATA Economics using data from Markit
48
49
50
51
52
53
54
55
56
57
2012 2013 2014 2015 2016 2017 2018
Global
Advanced markets
Composite PMIs (50 = no change)
Emerging markets
Yet export orders and air cargo growth have peaked
Sources: IATA Economics using data from IATA Monthly Statistics, Markit
-30%
-20%
-10%
0%
10%
20%
30%
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
% year-on-year % year-on-year
FTK growth(RHS)
Global PMI new export orders(LHS, adv. 2 months)
Uniform slowdown across major trade lanes suggests a common issue
Sources: IATA Economics using data from IATA Monthly Statistics route
3
4
5
6
7
8
9
10
11
Sep
'12
Mar
'13
Sep
'13
Mar
'14
Sep
'14
Mar
'15
Sep
'15
Mar
'16
Sep
'16
Mar
'17
Sep
'17
Int'l FTK by route (segment-basis, billion)
Europe-Asia
Asia - North America
Europe - North America
Within Asia
-15%
-10%
-5%
0%
5%
10%
15%
20%
Sep
'12
Mar
'13
Sep
'13
Mar
'14
Sep
'14
Mar
'15
Sep
'15
Mar
'16
Sep
'16
Mar
'17
Sep
'17
*Rolling 3 month periods
(% year-on-year)
US west coast seaport disruption
We’ve benefited from typical inventory restocking at start of the cycle
Sources: IATA Economics using data from IATA Monthly Statistics, Datastream
9
10
11
12
13
14
15
16
17
18
19
1.25
1.3
1.35
1.4
1.45
1.5
1.55
1.6
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
FTK
s b
illio
n
inve
nto
ry-s
ales
rat
io
FTKs and the business inventory-sales ratio
FTKs
Inventory-sales ratio
But the underlying relative weakness of world trade remains
10
12
14
16
18
20
22
1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
% o
f GD
P
Share of goods trade (exports+imports) in global GDP
Global financial crisis
Source: IATA Economics using data from Netherlands CPB
And protectionist pressures are growing
China Warns of ‘Strong’ Measures to Counter Trump Trade TariffsBloomberg News March 9, 2018
Donald Trump alarms UK steel by signalling a new transatlantic trade war with huge 25% tariffs that could 'devastate' British industryDaily Mail11th March 2018
Europe threatens tariffs on US peanut butter and orange juice as trade war loomsGuardian8th March 2018
At the same time this economic cycle is already long lived
0
10
20
30
40
50
60
70
80
90
100
110
120
130Ju
n 1
85
7
Oct
18
60
Ap
r 1
865
Jun
18
69
Oct
18
73
Mar
18
82
Mar
18
87
Jul 1
89
0
Jan
18
93
Dec
18
95
Jun
18
99
Sep
19
02
May
19
07
Jan
19
10
Jan
19
13
Au
g 1
91
8
Jan
19
20
May
19
23
Oct
19
26
Au
g 1
92
9
May
19
37
Feb
19
45
No
v 1
948
Jul 1
95
3
Au
g 1
95
7
Ap
r 1
96
0
Dec
19
69
No
v 1
97
3
Jan
19
80
Jul 1
98
1
Jul 1
99
0
Mar
20
01
Dec
20
07
Cu
rren
t cy
cle*
No. of months of continuous economic expansion
Source: NBER
Month in which the business cycle peaked
The current economic expansion in the US is the third longest on record
Post-war average
Source: IATA Economics using data from NBER
No sign of the usual end-cycle inflation problems…but the US?
14,000
14,500
15,000
15,500
16,000
16,500
17,000
17,500
18,000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Bill
ion
s o
f U
S$ c
on
stan
t p
rice
s
GDP and potential GDP in the US
US GDP
US potential GDP or supply capacity
Source: IATA Economics using data from Datastream
However, asset prices are at all time highs
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Ind
ex.
Equ
als
1 in
20
00
Q1
Asset prices, indexed to 2000
Global house prices, inflationadjusted
FTSE all World equity index
US 7-year Treasury bond index
Source: IATA Economics using data from Datastream
And central banks have to unwind their asset mountains
0
1000
2000
3000
4000
5000
6000
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Bill
ion
s U
S$/1
00
,00
0 Y
en
Central bank assets
US Federal Reserve Bank
Bank of Japan
Source: IATA Economics using data from Datastream
So high levels of debt could become a serious problem
50
60
70
80
90
100
110
120
130
140
135
140
145
150
155
160
165
170
175
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Outstanding debt held by non-financial private sector, % GDP
Developing economies
Developed economies
Source: IATA Economics using data from BIS
Trade growth is the major uncertainty
2.8%3.1%
4.7%
3.1%
3.9%
4.9%
3.6%
7.6%
9.5%
2.7% 2.7%
3.4%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
World GDP World goods trade Industry-wide FTKs
Actual (2012-2017)
Forecast baseline (2017-2022)
A return to pre-GFC norms (2017-2022)
A continuation of post-GFC performance
% CAGR
Sources: IATA, IMF
Scenario overview
Source: IATA Economics using data from IATA Statistics, IMF
But there is cautious optimism at the IMF
0.9 1.3 1.1 0.8 0.9 1.4 1.2 1.2 1.3 1.3 1.4
0.7 1.0 0.9 0.7 0.7 1.2 1.1 1.0 1.0 1.0 1.1
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
World goods trade volumesWorld GDP (market exchange rates)World GDP (PPP exchange rates)
% year-on-year
Sources: IATA, IMF
Implied trade to GDP multipliers:
Source: IATA Economics using data from the IMF Global Economic Outlook
With no accidents the next 5 years should be stronger than the past 5
-10%
-5%
0%
5%
10%
15%
20%
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
20
20
20
21
20
22
A return to pre-GFC normsA continuation of post-GFC performanceBaseline
% year-on-year
Source: IATA
Industry-wide FTK growth
Source: IATA Economics using data from IATA Statistics, own forecasts
Geo-politics and Global Trade: New Realities Brian Clancy
Managing Director of Logistics Capital & Strategy, LLC (“LogCapStrat”)
66
Agenda
Long term trends– Demographic trends: Population and the middle class– Industrial trends: Automation, sensors and analytics– Retail trends: E-commerce and online fulfillment
Near term trends– Market access: Free trade– Global security: Development and investment– Transportation infrastructure: Investments and overall quality
Trend implications by air cargo ecosystem participant
68
Global population, middle class, and aging population will increase demand for healthcare and perishables air tradeDEMOGRAPHIC TRENDS IMPACTING AIR CARGO DEMAND
Driver Demand Description Impact on Air Cargo Verticals Commodity Examples
Impact on Air Cargo Demand
Aging Population
Aging population triggers increased health care, resulting in pharmaceuticals and biologics
As the average lifespan increases, individuals spend more on health care, with end-of life treatment driving most significant cost
Diverse treatment and handling requirements are high value, time sensitive and too specialized for ocean and truck
Healthcare cold verticals include biologicals and pharmaceuticals with temperature control provisions
Strict FDA regulations monitor the temperature and handling specifications of these products, especially for biohazard materials
Shippers may have specific warehouse or time-window delivery requirements
Biologicals Live organs/
tissues Radiopharma Clinical trial test
samples Blood donation
collection
Population & Middle Class Growth
Destination import demand increases when rising incomes or populations trigger consumption spending
Rising income levels enable consumers to pay a premium for freshness and make perishables more accessible to consumers
Shift in consumer preferences in developed economies and relative growth in developing economies likely to be a source of continued perishables demand
Fresh foods require cold chain handling capability from origin to end user segment
Seasonality plays a significant role for fresh fruits & vegetables and lane supply will need to adjust to meet capacity demand
Some perishables are more delicate to transport (i.e. strawberries, raspberries, etc.) than others and may require special packaging and consolidation
Fruits Vegetables Seafood Meat, Poultry,
Pork Fresh Cut Flowers Dairy
Source: LogCapStrat analysis
Positive Neutral Negative
69
Key technologies will have positive and negative impacts on industrial air trade
Industrial equipment embedded with connectivity & data exchange
Remote monitoring and control Improves manufacturing efficiency and
economies of scale Strong growth
Analytical “best solution” Wide applicability to manufacturing,
marketing, inventory management Descriptive Analytics -> Predictive
Analytics -> Prescriptive Analytics Emerging growth
Manufacturing and material handling process without human assistance
Increasingly pervasive and affordable Eliminates locational labor cost
advantages Maximum growth
Source: LogCapStrat analysis
Industrial Automation
Industrial Sensors
Prescriptive Analytics
Aero Auto Healthcare Industrial Materials Perishables TechnologyVertical Segment
Positive Neutral Negative
Perishables origin of production cannot change
Healthcare is too difficult to automate and has special clearance/ handling requirements
High tech manufacturing is imbedded in Asia. Efficiencies will increase production/exports
Aero and Auto manufacturing could occur in US and Europe using robotics
Natural resource endowment is imbedded by country. Efficiencies increase production/exports
Key Points: Automation requires high unit value Economic Process Impairing (“EPI”)
manufacturing parts, which are shipped by air Industrial sensors can predict manufacturing failure and place advance order
replacements, eliminating EPI use case. Some Verticals (Materials, Perishables) are unable to change origin because
of natural resource location or growing season Automation reduces line changeover and batch costs enabling smaller order
sizes and product variety similar levels of profitability. Factories can be smaller and have similar levels of output
INDUSTRIAL TRENDS IMPACTING AIR CARGO DEMAND
Automation lets industrial shippers near shore, and sensors enable cheap tracking which increases air cargo value
622.1555.7
496.4443.1394.9351.4312.1276.6240.4212.0181.7
20222012 2020 202120162015 2018 20192014 20172013
E-Commerce growth will provide a structural tailwind for future air cargo growth
70
1,028941862775699620537
430327
234181
4233933643353022732552362462151802628292826252524252118 8169595043363026231814
2012 202220212013 2015 2016 2019 2020201820172014
REST OF WORLD E-COMMERCE GROWTH: 12-22USD (billions)
= AS = EU = LA = ROW
CAGR% 12-22
CAGR% 12-22
AS 19.0%EU 8.9%LA 3.8%
ROW 19.6%
US 13.1%
USD (billions)US E-COMMERCE GROWTH: 12-22
Source: LogCapStrat analysis, Euromonitor
Hetero SKU
Rail Ramp
E-Commerce demand is pushing retail supply chain towards faster, lighter shipments
71
E-COMMERCE RETAIL SUPPLY CHAIN
Factory
HKG
“Build to Order”
Vendor Origin Consolidation
FCL (FEU)10,000 kg
US Port Trainload
Drayage
(FCL)
LAX ONT
EOQ = 10,000 – 50,000 kg
FCL Intermod
al15,000
kg
Distribution Center
DFW DFW
FCLRetaile
r
Homo SKU
LTLVolumeHigh value SKU
Store
Store
Store
DCC(FTL)
LTL
- Walmart- Target- Best Buy
Households
Factory
HKG
“Build to Stock”
Fulfillment by Amazon Forwarding
Center
Air
1,000 – 2,000 kg (pallet)
EOQ = 1,000 - 2,000 kg
5kg
Stock level = Amazon threshold
Weekly cycle
CONVENTIONAL RETAIL SUPPLY CHAIN
1 day3 days45 days 1 day 30 days ≈ 125 days15 days 30 days
Source: LogCapStrat analysis
Households
Structural change in the retail supply chain is creating an air cargo growth renaissance due to cross border e-commerce
72
Manufacturers with long supply chains are shifting to online product sales fulfilled by Amazon or other online retailers
Suppliers use air mode because they must meet the short cycle times required for online fulfillment
Manufacturers send weekly palletized shipments to online fulfilment centers by air. Previously, origin-consolidated full container loads would travel for weeks on multi-modal supply chains before reaching a distribution center
The shift to air mode has the following effects:– Less ocean freight, less origin vendor consolidation– Increased “customer urgency” (e.g. instant-fulfillment and gratification)– Lower Economic Order Quantity (“EOQ”)/ shipment size
As e-commerce continues to gain a material share in retail sales, additional online retail demand will develop
EMERGING E-COMMERCE SUMMARY
Source: LogCapStrat analysis
74
Near term geopolitical trends will not inhibit air cargo growth
Trade market access–Economic reform and industry deregulation increase access to the global market and decrease market inefficiencies–Advancing trade agreements (such as CPTPP) will increase trade volume on impacted lanes & regions–New lanes and regions are modernizing and entering the market
Global security environment–International cooperation helps prevent and manage security events–Military force posture shifts to Asia will adapt and not inhibit trade–Cyber is the main threat from non-state and state actors
Investment in transportation infrastructure–Investment in infrastructure is urgently needed to replace existing and reconfigure for new air trade system–Airports must plan for automation of vehicles, ground equipment and terminals–Potential for new investment spending (infrastructure bill) and private equity investments
NEAR TERM TRENDS IMPACTING AIR CARGO DEMAND: 2018-2022
Source: LogCapStrat analysis
Each participant in air cargo ecosystem will need an action plan to address each trend
76Source: LogCapStrat analysis
Shippers / consignees
Integrators, Forwarders Airlines Airports,
HandlersIndustry suppliers
Long term Aging population
Population & middle class growth
Industrial automation
Industrial sensors
Prescriptive analytics
Short term Trade market access
Global security environment
Transportation and infrastructure
Positive Neutral Negative
TREND IMPLICATIONS BY AIR CARGO PARTICIPANT
Positive Neutral Negative
Demographic shifts will trigger cold chain vertical demand. Participants will need to develop expertise
Participants will be direct beneficiaries of automation
or will need to accommodate/survive the
impact of increased efficiency
The global outlook is generally positive.
Participants will likely be unaffected by major
disruptions
78Confidential – not for third party distribution © Accenture 2018 accenture.com/seaburyconsultingConfidential – not for third party distribution © Accenture 2018
Air Cargo 2017: a record year!
IATA WCS opening plenary, Dallas
13.Mar.2018
79Confidential – not for third party distribution © Accenture 2018
2017 key themes and implicationsWhile the market experienced strong demand growth in 2017, longer term trends and structural changes may provide both risks and opportunities
Air cargo demand surged in 2017…
… with growth stronger than the last 5 years combined…
…and visible on all key trades and commodities
2017 a record year!
Supply and demand are expected to rebalance…
..after significant increase in belly and freighters in the last 5 years..
… and deliveries of factory-built freighters have peaked
Rebalancing of supply & demand
China outpaces in air export and import growth,…
…US sales grow faster than inventories…
…short term growth outlook remains bullish but expect a more moderate longer term
Growth drivers
E-commerce and express outgrow general air freight…
… as new platforms are desiring faster delivery..
… which leads to stronger peaks and smaller shipments
Continued rise of e-commerce
80Confidential – not for third party distribution © Accenture 2018
2017 key themes and implicationsWhile the market experienced strong demand growth in 2017, longer term trends and structural changes may provide both risks and opportunities
Air cargo demand surged in 2017…
… with growth stronger than the last 5 years combined…
…and visible on all key trades and commodities
2017 a record year!
Supply and demand are expected to rebalance…
..after significant increase in belly and freighters in the last 5 years..
… and deliveries of factory-built freighters have peaked
Rebalancing of supply & demand
China outpaces in air export and import growth,…
…US sales grow faster than inventories…
…short term growth outlook remains bullish but expect a more moderate longer term
Growth drivers
E-commerce and express outgrow general air freight…
… as new platforms are desiring faster delivery..
… which leads to stronger peaks and smaller shipments
Continued rise of e-commerce
81Confidential – not for third party distribution © Accenture 2018
YoY air trade growth, 2017 Jan – Dec%1
Global air trade showing double digit growth
1) Growth in terms of weight; Data excludes UN Comtrade; thickness of arrows is representative of Jan-Dec 2017 trade lane size in tonnesSource: Seabury Global Trade Database and Dashboard
Global air trade grows 10.8% during 2017; European and Asian exports show double digit growth on most trade lanes, whereas Transatlantic growth rates vary
Global air trade growth: 10.8%
82Confidential – not for third party distribution © Accenture 2018
5 year growth has been moderate with a peak in 2017
Note: Air cargo exports and imports combinedSource: Seabury Global Air Trade Database, Seabury Consulting analysis
The global market has grown with 3.0% over the past 5 years, with a 10.8% growth peak in 2017 mainly from North East Asia and Western Europe
2017 YoY Air cargo growth breakdown Share of growth, per regionThousand tonnes YoY growth
2012
9
2013
815
2017 2017
20,653
433
2015
-311
2014
23,966
2016
2,36710.8%
+3.0%
40%
36%
10%
Other
North East Asia
Western Europe
South East Asia
14%
88% of NE Asia growth comes
from China
Germany accounts for 32% of Western Europe growth
Growth
Vietnam’s growth is 54%
of SE Asia
Air cargo growth per year
83Confidential – not for third party distribution © Accenture 2018
14% 9% 15% 13% 16% 12% 12% 24% 12% 10%
Many major economies experienced strong growth
Top 10 air trade growth countries, 2016-2017 YoY changeThousand tonnes (export + import growth)
Source: Seabury Global Trade Database; Seabury Consulting analysis
Double-digit growth was a common sight among the world’s top air cargo markets in 2017; air cargo exports and imports to/from the USA grew less strongly than peers
South KoreaJapan VietnamChina NLUSA Germany India
156
Italy France
881
646
316260
204151
102137 121
% growth 2011-2017
6% 1% 3% 0% 6% 4% 4% 16% 2% 3%
% growth2017
Even countries that experienced only marginal air
trade growth in the past decade, such as Japan,
performed very strongly in 2017
84Confidential – not for third party distribution © Accenture 2018
Strong air trade growth for nearly all industries
Industry summary Jan - Dec 2017Air weight change (metric tons) and growth (%)
Top / bottom commodities Jan - Dec 2017Air weight change (1,000 tons) and % growth
Source: Seabury Global Trade Database, Seabury Global Air Trade Dashboard (March 2018)
Major industries continue to experience double digit air trade growth; machinery parts, raw materials and high tech have contributed most to air cargo volume growth
86
55
41
38
37
-9
-14
-22
-12
Fresh salmon
Coats
Primary plastics
Vehicle Engine Parts
Asparagus
Ceramic tiles
Toys
-12Electrical machines
Marquetry wood
Fresh roses
40%
41%
118%
49%
10%
-89%
-8%
-15%
-55%
-6%
Automotive showed strong growth in 2017 after a relatively weak 2016
85Confidential – not for third party distribution © Accenture 2018
2017 key themes and implicationsWhile the market experienced strong demand growth in 2017, longer term trends and structural changes may provide both risks and opportunities
Air cargo demand surged in 2017…
… with growth stronger than the last 5 years combined…
…and visible on all key trades and commodities
2017 a record year!
Supply and demand are expected to rebalance…
..after significant increase in belly and freighters in the last 5 years..
… and deliveries of factory-built freighters have peaked
Rebalancing of supply & demand
China outpaces in air export and import growth,…
…US sales grow faster than inventories…
…short term growth outlook remains bullish but expect a more moderate longer term
Growth drivers
E-commerce and express outgrow general air freight…
… as new platforms are desiring faster delivery..
… which leads to stronger peaks and smaller shipments
Continued rise of e-commerce
86Confidential – not for third party distribution © Accenture 2018
Growth in Chinese air exports spearheaded by the East & South
China’s air exports by region, 2000-2017Million tonnes, CAGR %
Chinese shipper locationsShipper location, air volume
Sources: Seabury Global Trade Database, Seabury China Shipper Database, Seabury Consulting analysis
China East and South show largest absolute air export growth
China East and China South air exports continue to grow strongly even with their large base volumes; this is reflected in the larger number of air exporting than importing shippers
20102000 2005 20150.0
0.5
1.0
1.5
2.0
2.5
China SouthChina East
China North
China West
Imports
Exports
2000-2017 % CAGR
7%10%
10%
34%
2017
Importing shippers are mainly concentrated around Shanghai
87Confidential – not for third party distribution © Accenture 2018
US inventory to sales growth spurs US air freight imports
US Inventories and Sales vs. US air imports, 2000 – Dec 2017 Thousand tonnes
Source: U.S. Census Bureau, Seabury Global Trade database, Seabury Consulting analysis (March 2018)
US sales outpaced the growth of inventory, which indicates a positive effect on US air import growth
0.60
0.65
0.70
0.75
0.80
0.85
200
350
300
250
400
450
2006 20162000 2002 2004 2008 2010 2012 2014
Inventory-to-sales ratio (inverted) (right axis)US air imports (left axis)
Inverted inventory to sales ratio
US West-coast port strike led to one-off
peak in air trade volumes during the beginning of 2015
88Confidential – not for third party distribution © Accenture 2018
Inventory to Sales (I/S) ratio is declining
US Inventories and Sales, 1998 – Dec 2017 (Trillion US$)
Source: U.S. Census Bureau, Seabury Consulting analysis (March 2018)
The reducing I/S ratio has a positive effect on US air import growth
US inventories continue to steadily increase, while sales are only recovering recently; the Inventory to Sales ratio growth is on a downward trend, for the first time in the last ~6 years
0.0
-8
16
1.0
20
1.2
0.8
12
-4
-12
1.8
1.4
1.6
2.0
-16
0
4
8
20102008 20141998 20042000 2002 2006 2012 2016
Inventories
SalesI/S ratio YoY growth (right axis)
YoY growth (%)
Recent continuous decline of the I/S
ratio growth
89Confidential – not for third party distribution © Accenture 2018
Several niche commodities drove significant volume growth
Children’s toys from China, by airThousand tonnes
Milk powder to China, by airThousand tonnes
Source: Seabury Global Trade Database (March 2018); Seabury Consulting analysis
Besides “standard” air freight goods, “ad hoc” commodities had significant contribution to air freight growth this year
Popularity of spinners has led to restocking by air freight, causing a spike in China’s toy exports; whereas milk powder continues to be imported by air and is growing at a high pace
15
10
0
5
20
25
F JJ OM JM A MJ SJ OA S N DD J F M A A N0
10
5
25
15
20
NF JS JMJ DM A M J MJ A O F A J A S O N D
2016
+38,000 tonnes + 32,000 tonnes
2017 2016 2017
90Confidential – not for third party distribution © Accenture 2018
Peak air cargo events are the new standard
China’s air exports of mobile phonesThousand tonnes
Source: Seabury Trade Database China Monthly (March 2018)
Events such as the annual iPhone launch, Singles Day, and Black Friday, have significant impact on mobile phone exports by air
Exports of mobile phones gradually shifted to Zhengzhou (Foxconn) now manufacturing the majority of the new iPhones, while the remainder likely originates from Shanghai
10
50
40
0
20
30
J AS MJ MA J OJF M FAOA SM J J A OS ON D JJ OF M M SJ A NN D MJ M JAM JJ J A FS N FD JOM MA D A N D J F M A J J A S N D J F M A M J J A S O N D J
iPhone 5iPhone
5C & 5SiPhone 4SLaunch of: iPhone 6 iPhone 7
OthersBeijing Shanghai Zhengzhou
2011 2012 2013 2014 2015 2016
iPhone 6S
2017
iPhone 8 & X
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-8-6-4-20246
-30-20-10
0102030
’08 ’12’09 ’10 ’15’11 ’14’13 ’16 ’17
Expected growth varies among the main exporting regions
Note: forecasts made based on following correlation factors (R): China=0.79; USA=0.80; EU=0.85Source: Markit Economics; OECD; Seabury Global Trade Database; Seabury Consulting analysis (February 5th, 2018)
Leading indicators hint toward acceleration of China’s air export growth into 2018; USA’s air exports recovered, while Europe shows stable strong air freight growth
USA’s air exports Eurozone’s air exports
10%
5%
15%
37 8 9 10 11 12 1 2 4 5 60%
5%
10%
15%
53 4 76 28 9 10 11 12 10%
5%
10%
15%
20%
25%
5 386 7 9 1110 112 2 4
HistoryForecast
HistoryForecast
HistoryForecast
Months:
Based on CLI + 3 months
Based on PMI+ 5 months
Based on PMI+ 3 months
-20-100102030
-40-20
0204060
’15’10’09’08 ’11 ’13’12 ’14 ’16 ’17 ’18
Exports (%)
-60-40-200204060
-30-20-10
010203040
’15’11’08 ’10 ’12’09 ’13 ’14 ’16 ’17 ’18
Exports (%)Exports (%) PMI (%) CLI (%) PMI (%)Peak “unexpected” by
PMI, mostly due to West Coast ports strike
YoY, 2017 & 2018 (%)
China’s air exports
YoY, 2017 & 2018 (%) YoY, 2017 & 2018 (%)
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Five-year multiplier & FTK projection
What can we expect for air cargo growth looking forward?
FTK to GDP ‘multiplier’ ratio, 1979-2017F1
FTK (%) to GDP (%), 10-year average2
1) Based on expected freight tonne growth forecasted by IATA; 2)The 2.2 ratio at 1980 means that FTKs on average grew 2.2 times faster than GDP over the period 1970-1980; Assuming GDP growth of 2.5% p.a. for 2017-2021 (EIU)Source: Boeing (1970-2000); IATA Carrier Tracker (2000 and beyond); Worldbank; EIU; Seabury Consulting Analysis (Oct, 2017)
Using a GDP multiplier, a slower growth pace of ~3-4% (FTK) is more likely for air cargo
There is a long-term decreasing trend in the GDP multiplier on air cargo; the conventional belief that the cargo industry will grow at 5-6% per year does not hold anymore
0
1
2
3
0084 96 1780 88 92 04 08 12
1980-20052.3
High5.8%
Medium3.6%
If multiplier returns to nineties levels
If multiplier returns to average of last twelve years
Multiplier FTK CAGR Rationale
2005-2017F1.41.4x
2.3x
1.2x
Assuming GDP growth of 2.5% p.a. for 2017-2021 (EIU)
Medium3.1%
If multiplier returns to levels of recent years (2012-2016 )
2012-20161.2
2017-21 CAGR
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2017 key themes and implicationsWhile the market experienced strong demand growth in 2017, longer term trends and structural changes may provide both risks and opportunities
Air cargo demand surged in 2017…
… with growth stronger than the last 5 years combined…
…and visible on all key trades and commodities
2017 a record year!
Supply and demand are expected to rebalance…
..after significant increase in belly and freighters in the last 5 years..
… and deliveries of factory-built freighters have peaked
Rebalancing of supply & demand
China outpaces in air export and import growth,…
…US sales grow faster than inventories…
…short term growth outlook remains bullish but expect a more moderate longer term
Growth drivers
E-commerce and express outgrow general air freight…
… as new platforms are desiring faster delivery..
… which leads to stronger peaks and smaller shipments
Continued rise of e-commerce
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2006-2016 CAGR
10%
5.4%
1.7%
Growth driven by e-commerce and express shipments
Global air freight and express cargo growth, 2006-2017FIndex (year 2006=100)
Source: Universal Postal Union; Seabury Express Trade Database; Seabury Consulting analysis
With 11% growth in volume in the past 6 years, e-commerce (mail) has outperformed the growing express market (5% p.a.) and stagnating air freight business (<2% p.a.)
406080
100120140160180200220240260
201620102006 2008 2012 2014 2017F
International mail parcels (# of shipments)
Express air (# of shipments)
Air freight (weight)
Letter mail
-3%
2006-2017F
2006-2017F
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Key eCommerce players are transforming delivery standards
1) Cargo Facts; Seabury Consulting industry interviews; Seabury Consulting research
A few platforms consolidate a majority of the growing eCommerce flows; delivery time targets will impact supply chains
Investing heavily in ‘new retail’; Jack Ma’s vision is to open the world to “Mom & Pop” shops and SME merchants
Investing heavily in own logistics and warehousing; preparing IPO of JD Logistics
Broad network of US warehouses and offers fulfillment services (FBA) to sellers; operates its own freighter network, and envisions 2hr delivery
Handles >70% of eCommerce packages in China1 and aims to further streamline logistics
Alibaba envisions same-day delivery within China, and 72
hour global deliveryanywhere in the world
Amazon is driving towards 2 hour delivery with Amazon
Prime
eCommerce players
Ambitious delivery targets of key eCommerce players may change global supply chains
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Q4 peak
Seasonality of air express cargo contributes to year-end peak
Seasonality of air express and air trade, 2016Index (Jan=100); Express (# of air shipments); Air freight (weight)
Source: Seabury Express Database, Seabury Consulting analysis
Q4 peak for express (and air freight) contribute to a strong full-year growth
The seasonality pattern of air express and air freight are aligned during March-October; however, express strongly outpaced air freight in relative growth during Q4 2016
150
120
100
110
0
130
140
100
Feb Mar Apr May Jun Jul NovAug Sep Oct Dec
Express
Air freight
Jan
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Christmas
Holiday
ramp up
Since 2010 air express average shipment size dropped by 16%
Air express vs. shipment weight trendsMillion air shipments
Seasonality pattern in weight per shipment (WPS)
Source: Seabury Express Database, Seabury Consulting analysis
Structural end of Q4 decline in weight per shipment assumed due to e-commerce growth in international air express
Despite strong absolute shipment growth, air express shipments have been decreasing in size due to booming e-commerce; significant decrease is seen pre-Christmas
12.5
13.0
13.5
14.0
14.5
15.0
15.5
16.0
16.5
17.0
2006 2008 2010 2012 2014 2016100
150
200
250
# shipments (left axes)weight per shipment (right axes)
Weight per shipment (kg)
12.0
12.5
13.0
13.5
14.0
14.5
15.0
15.5
JulJunJan AugFeb May
2016
Mar Apr Sep NovOct Dec
Drop in air express during crisis in 2009
followed by fast recovery
Weight per shipment (kg)
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2017 key themes and implicationsWhile the market experienced strong demand growth in 2017, longer term trends and structural changes may provide both risks and opportunities
Air cargo demand surged in 2017…
… with growth stronger than the last 5 years combined…
…and visible on all key trades and commodities
2017 a record year!
Supply and demand are expected to rebalance…
..after significant increase in belly and freighters in the last 5 years..
… and deliveries of factory-built freighters have peaked
Rebalancing of supply & demand
China outpaces in air export and import growth,…
…US sales grow faster than inventories…
…short term growth outlook remains bullish but expect a more moderate longer term
Growth drivers
E-commerce and express outgrow general air freight…
… as new platforms are desiring faster delivery..
… which leads to stronger peaks and smaller shipments
Continued rise of e-commerce
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70
80
90
100
110
120
130
140
150
YoY (%): 2008 2009 2010 2011 2012 2013 2014 2015 2016 20171
FTK -3% -9% 23% 1% -1% 2% 6% 3% 4% 11%
ATK 1% -7% 10% 6% 2% 3% 6% 7% 5% 4%
2017 demand growth outperforms capacity growth
Global air cargo traffic (FTK) and supply (ATK), 2008 – November 2017Index (Jan 2008 = 100)
In seven of the last ten years capacity growth (ATK) has outpaced demand (FTK); however demand growth has significantly exceeded capacity growth in 20171
1) Year-to-date, actuals until November 2017; International traffic, seasonality adjusted; Source: IATA Monthly Statistics; Seabury Consulting analysis
Near flat line
134
142Steady
capacity growthDemand
and supply out
of sync
Global capacity (ATKs)Global air cargo traffic (FTKs)
Near flat line
Steep traffic growth
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Scheduled belly capacity is gaining share over freighters
Monthly flown capacity, freighter vs. belly1, 2010-2017 (Dec)Million tonnes
1) Scheduled wide-body capacity, excludes integrator operations; Capacity evaluated on scheduled route basisSource: Seabury Route Capacity Database (December 2017)
Belly accounts for two-thirds of wide-body scheduled capacity
Scheduled airline belly capacity is increasingly gaining share over scheduled freighter capacity as belly capacity increases strongly
2
5
0
1
4
3
Belly Freighter
Scheduled widebody capacity - excluding integrators
20142013201220112010 2015
38% 39% 39% 37% 36% 35%
2016
35% 33%
2017
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Capacity growth primarily driven by Middle Eastern carriers
Total Widebody scheduled international air freight capacity, per carrier regionMillion tonnes
Source: Seabury Global Capacity Database, Seabury Consulting analysis (December 2017)
Between 2012 and 2017, air cargo capacity increase by Middle-Eastern carriers exceeded that of the rest of the world combined
55%
2012
55%
54%
38%
33%
2012
45%
2017
46%
54%
40%
54%60% 67%
2017
34%
66%
5
2012
62%
20
2017
450%
50%
2012
45%
201746%
3
2012
46%
15
2017
22
4
9
1211
FreighterPassenger
Asia-Pacific North America Middle East & South Asia Europe Other
Capacity growth will be driven by wide body passenger aircraft orders
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New aircraft deliveries have peaked
Factory built widebody freighter & belly1 capacity on firm orderThousand tonnes
1) Wide body passenger aircraft (incl. mixed passenger/freight combinations); only firm OEM orders considered; years represent build yearsSource: Ascend Fleet Database, Seabury Consulting analysis (September 2017)
Capacity growth will be driven by wide body passenger aircraft orders
Freighter deliveries have peaked in the past years, and belly capacity on order will drive new deliveries in the coming years, accounting for ~76% of the outstanding capacity
30
0
10
50
20
40
2002-2006
47% 49%
2007-2011 2012-2016
43%
76%
24%
2017-2021
Passengeraircraft
Freighters
-25%
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Most outstanding freighter orders are for integrators
Deliveries of widebody factory-built freightersAnnual capacity entering the market in thousand tonnes
Note: Widebody freighters onlu; only firm OEM orders considered; years represent build yearsSource: Ascend Fleet Database; Seabury Consulting analysis (February 2018)
Airline widebody freighter deliveries are drying up, most outstanding orders are for integrators
The world’s largest integrators drive the majority of expected new freighter deliveries in the coming years, as line haul carriers have just passed a peak in major freighter deliveries
5
0
1
4
2
3
2012 20202010 20182014 2016
Airlines
Integrators
22%
78%
Capacity share of deliveries:
Future deliveries
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2017 key themes and implicationsWhile the market experienced strong demand growth in 2017, longer term trends and structural changes may provide both risks and opportunities
Air cargo demand surged in 2017…
… with growth stronger than the last 5 years combined…
…and visible on all key trades and commodities
2017 a record year!
Supply and demand are expected to rebalance…
..after significant increase in belly and freighters in the last 5 years..
… and deliveries of factory-built freighters have peaked
Rebalancing of supply & demand
China outpaces in air export and import growth,…
…US sales grow faster than inventories…
…short term growth outlook remains bullish but expect a more moderate longer term
Growth drivers
E-commerce and express outgrow general air freight…
… as new platforms are desiring faster delivery..
… which leads to stronger peaks and smaller shipments
Continued rise of e-commerce
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Contact detailsFor more information, please contact…
Marco Bloemen
Managing DirectorSeabury Consulting
E-mail: [email protected]: +31 61 472 0413Phone: +31 20 880 4240Website: www.accenture.com/seaburyconsulting
eCommerce: Embracing the OpportunityModerator Glyn Hughes, Global Head of Cargo, IATA
Panelists Liam O’Sullivan MILT, Director Operations, International Post Corporation (IPC) Lucas Kuehner, Global Head of Air Freight, Panalpina Management Ltd
eCommerce: Embracing the OpportunityModerator Glyn Hughes, Global Head of Cargo, IATA
Panelists Liam O’Sullivan MILT, Director Operations, International Post Corporation (IPC) Lucas Kuehner, Global Head of Air Freight, Panalpina Management Ltd
12th IATA World Cargo Symposium
Air cargo and the fight against illegal wildlife trade
John E. ScanlonSecretary-General of CITES
Spotlight on Safety and SecurityFrederic Leger
Director, Airport, Passenger, Cargo and Security, IATA
The Advantages of Canine Screening for Air Cargo
Brandon FriedExecutive Director, The Airforwarders Association
The Advantages of Canine Screening for Air Cargo
Brandon FriedExecutive Director, The Airforwarders Association
Motivational Speech:
Business and Pro-Sports Sharing a Winning Formula
Drew PearsonDallas Cowboys (Retired)