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WELCOMEJim Butler

SVP International & Cargo, American Airlines Cargo

Connect. Collaborate. Modernize.Jim Butler

World Cargo Symposium 2018

September 22, 2017

Connecting people with the goods they want, need and depend upon is a noble mission

Volumes increasing. Economy improving.Customer expectation higher than ever.

Air cargo connects people with goods quickly.

The way forward is definedby digital processes

ONE Record of shared, secure data

Together, we’ll build the future of our noble mission

Keynote AddressTom Overacker

Executive Director Office of Field Operations, United States Customs & Border Protection

Cargo: The Year in ReviewGlyn Hughes

Global Head of Cargo, IATA

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

Global economy

Airport Slots

Over 190 slot coordinated

13 of 20 cargo airports

Industry commitment

to modernization

Safety and Security

#1 Industry Priority

Air Cargo Border Efficiency

On average it took

1.41 days for cargo to be cleared

Wide Adoption of CEIV Pharma

2013 2014 2018

e-AWB

53%

450,000

500,000

550,000

600,000

650,000

700,000

750,000

800,000

850,000

800,000 e-AWB

Shippers Declaration of Dangerous Goods

Electronic shipper’s declaration of dangerous goods

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

E-Commerce Cargo Facility of the Future

Air Cargo Career Competition

Connect, Collaborate, Modernize

IATA Competition Law Compliance

Economic Outlook: Will the positive growth continue?

Brian PearceChief Economist, IATA

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


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


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

Networking Break

WELCOME BACKBrendan SullivanHead Cargo Operations, IATA

Digital signage sponsored by

Geo-politics and Global Trade: New Realities Brian Clancy

Managing Director of Logistics Capital & Strategy, LLC (“LogCapStrat”)

Confidential

Demand Trends that Matter for Global Air Package and Freight: 2018-2028

March 13, 2018

65

Long Term Trends

Near Term Trends

Agenda

Implications Across the Air Cargo Ecosystem

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

67

Long Term Trends

Near Term Trends

Agenda


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


Industrial Automation

Industrial Sensors

Prescriptive Analytics

Aero Auto Healthcare Industrial Materials Perishables TechnologyVertical Segment


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


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


73

Long Term Trends

Near Term Trends

Agenda


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


75

Long Term Trends

Near Term Trends

Agenda


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


TREND IMPLICATIONS BY AIR CARGO PARTICIPANT


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

Air Cargo 2017: A Record YearMarco Bloemen

Managing Director, Seabury Consulting

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






2017 a record year!








Growth drivers






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%


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


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


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






2017 a record year!








Growth drivers






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


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


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


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


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


-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 (%)


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






2017 a record year!








Growth drivers






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


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


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


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)






2017 a record year!








Growth drivers






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


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


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


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%


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






2017 a record year!








Growth drivers






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

http://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

Networking Lunch

CITIESJohn Scanlon

Secretary General, CITES

12th IATA World Cargo Symposium

Air cargo and the fight against illegal wildlife trade

John E. ScanlonSecretary-General of CITES

CITES and IATA joining force

We share our planet with many species

7,000 species

Local communities - best protectors of wildlife

Development through conservation - SDGs

An interconnected world – key role of transport sector

HRH & the Transport Task Force

121

Join the fight against

illegal wildlife trade!

Thank you!

Spotlight on Safety and SecurityFrederic Leger

Director, Airport, Passenger, Cargo and Security, IATA

Technology Innovation in Safety

and Security Screening

Jennifer HaighAviation Security Consultant

The Advantages of Canine Screening for Air Cargo

Brandon FriedExecutive Director, The Airforwarders Association

IATA WCS 2018Third-Party Canine Update

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)

Chairman’s Closing RemarksGlyn Hughes


Femke Sickler Danny JonkerCaroline Larisch

Finalists

Chairman’s Closing RemarksGlyn Hughes


WELCOME [] · 2013 2014 2018. e-AWB 53% 450,000 500,000 550,000 ... –Market access: Free trade...

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