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May 2006May 2006 CWRMCWRM 3333

Think differently the future of air freight

The current outlookLessons from the pastLessons from the pastFundamentals remain strongLessons for the future

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“A different way to fly”Improving frequencies

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Different networksBetter services

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Didier LenormandHead of Marketing - Freighters

Air cargo traffic globally started declining from end 2007

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The decline was driven by a recessionary situation

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wasn’t this hiding another trend? CWRM 03-10

In this crisis, air freight traffic has declined faster and deeper than world trade

World trade and freight traffic (year-over-year)

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This means that air freight has lost market share

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Where are we coming from?

Global demand declined following the financial collapses of key financial players in the US in 2008/09 but airfreightkey financial players in the US in 2008/09 but airfreight declined before

2008 h t i d ith i i t f f l d i2008 was characterised with rising cost of fuel and primary material: leading to raising economic nervousness

Wh l h l i d i i i d ?

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What else have we recently experienced in various industry?Cost cutting in industrial processes against rising raw material and fuel pricesI ti l t i di t ib ti b d t ith t h i t

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C bi ti f th b b bl l i th it d f

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3737CWRM 03-10

Some modal shifts result from product life circle changes - The LCD screen example

LCD products(International trade, tons x 1,000)Trading LCD 19” screens In Toulouse -

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Trading LCD 19 screens In Toulouse -France:

Selling price 2004: euro 390 (average)300 CAGR

+69%

Selling price 2004: euro 390 (average)

Selling price 2010: euro 84 (first price)

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At euro 84 it is probably not anymore an air freightable commodity

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Air weight

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Overall growth was hiding a shift that started before the current crisis

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Note: containerized trade only

Source: Seabury Global Trade Database

Ocean weightg

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started before the current crisis

Shippers have now wider options

Some shipments have moved to ground transportSea transport offers improved reliability

Some time definite services -slower but cheaper – with guarantiesCommoditisation of mid value consumers goods

No more a growth market for air cargo

Technologies are evolving

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However world trade and freight traffic show strong recovery

World trade and freight traffic (year-over-year)

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A strong rebound is anticipated but in which form?4040CWRM 03-10

Where are we heading in the air freight industry?

There are clear evidence that air cargo traffic recovers

However:However:

Will it be back on the volume trend - recovering lost tonnagesWill it b th t f t ffi diti b k i th i

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Will it be the same type of traffic – same commodities back in the air Will it be based on same flows – are there are new freight lanes emerging?

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Fundamentals remain strong -1, ‘B2B’

Globalisation of productions – Continued trendsAttractiveness of low labour cost countries

This imply a needs for quality supply chain organisations

O t iti f ld id di t ib tiOpportunities for world- wide distributionEver widening product outputs – call for efficient supply chains again

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Global companies still need global cargo services for:- Lean inventory strategies - Just-in-Time

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- Make-to-order,

to reduce production costs for higher value commodities :

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Air transport will continue to do it better!CWRM 03-10

More changes ahead: A two-speed world with Emerging Economies having more autonomous growth

Real GDP growth (%)

EmergingEmerging economies

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New trade lanes are emergingCWRM 03-10

Fundamentals remain strong -2, ‘B2C’

• Faster GDP growth rates in key emerging countries – IE the BRICs - lead to stronger air cargo growthBRICs - lead to stronger air cargo growth

BRIC : IE, Brazil, Russia, India, ChinaAfrica is as well becoming a growing partner

Continued developments of middle classes in emerging countriesHigher education of larger numbers

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Continued growth of urban populations: Potentially expanding demand for higher value consumer goods

AsiaLatin America

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‘B2C’ demand spreads to larger mid-class consumers:

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p gwe see it with the four ‘BRICs’

BRICs: A strong stimulus for newly, fast emerging, new air trade lanesCWRM 03-10

Some air freight industry answers to stiffer competition

The air freight market will continue to be dominated by:

• Strong competition & declining yields – Need to cut costs

• Improve services for better services – Improve frequencies

• Seasonality of cargo traffic – Opportunity to change operations

Improve services for better services Improve frequencies

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• Imbalanced cargo flows – Opportunity to change operations

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Are current all-cargo fleets adapted to the new game play?

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100tonnes + freighters: Frequencies can be (very) low28 747-200 and 747-400 freighter operators.A direct route is defined as a route with no intermediate traffic stops.

72% of direct 747F routes are performed

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72% of direct 747F routes are performed with 3 or fewer weekly frequencies: The aircraft is simply too big

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Weekly frequencies

Low frequency levels result from lack of alternative solutions

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Mid-size freighters bring flexibility and adaptability to riskier times4646CWRM 03-10

As freighters get loaded , first and last tonne loaded do not earn same value

Market break-over pointpoint

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yield to cover cost

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The challenge of larger all-cargo aircraft!

Second industry challenge:Major air cargo flows will remain imbalanced

PRC- North America

PRC-EuropeEurope

Asia-North Europe - North America

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AmericaAsia -Europe Latin America-

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Cargo traffic is unidirectional,

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g ,This leads to costly, low-value return flights:

Is the larger aircraft the only solution?CWRM 03-10

Air freight needs to refocus on its own strengths

Selling the values of air freight S ll d i t fSell speed against surface means

Saving (again and again) on inventory managementSelling value of customised services

Segmented air products VS commoditisation of sea freightSegmented air products VS commoditisation of sea freight

Selling value of air servicesI f i ith id i f i ht

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Improve frequencies with new mid-size freighters

Developing new markets between developing countries (BRIC )

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Air freight has a strong future

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4949CWRM 03-10

Air freight needs to refocus on its own strengths

Selling the values of air freight S ll d i t fSell speed against surface means

Saving (again and again) on inventory managementSelling value of customised services

Segmented air products VS commoditisation of sea freightSegmented air products VS commoditisation of sea freight

Selling value of air servicesI f i ith id i f i ht

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Improve frequencies with new mid-size freighters

Developing new markets between developing countries (BRIC )

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Air freight has a strong future

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5050CWRM 03-10