8TH WORLD CARGO SYMPOSIUM LOS ANGELES 11-13 MARCH 2014

Opening Plenary

1

8TH WORLD CARGO SYMPOSIUM LOS ANGELES 11-13 MARCH 2014

Housekeeping

↗Please note the emergency exits in the front and rear of the room

↗Please silence your electronic devices

2

Opening Remarks

↗Desmond Vertannes

↗ Global Head of Cargo, IATA

3

Welcome to Los Angeles

↗Eric Garcetti

↗ Mayor of Los Angeles

4

Welcome Address by American Airlines

↗Robert D. Isom, Jr.

↗ COO, American Airlines

5

Complementary Domestic Network

Domestic Network

218 Destinations

682 Routes

Diio 2013 published schedules as of January 25, 2013

Complementary Global Network

Canada

9 Destinations

30 Routes

Asia/Pacific

5 Destinations

8 Routes

Europe / Middle East

21 Destinations

52 Routes

Caribbean

32 Destinations

93 Routes

South America

21 Destinations

34 Routes

Central America

10 Destinations

22 Routes

Mexico

20 Destinations

42 Routes

Diio 2013 published schedules as of January 25, 2013

130 cities served by AA but not by US

62 cities served by US but not by AA,

including 9 Trans-Atlantic

Our Widebody Fleet

Today

A330-200s

12

A330-300s

9

B767-200s

19

B767-300s

58

B777-200s

47

B777-300s

11

2014 & Beyond

A330-200s

3

B777-300s

9

B787-800s

B787-900s

42

A350-900s

22

Comparing Cargo Capacity

B787-800 B767-300

Cargo Positions 28 Cargo Positions 15

Cargo Weight

Capacity 104,460 lbs.

Cargo Weight

Capacity 59,650 lbs.

ULD Capacity

Options

28-LD3s

ULD Capacity

Options

15-LD3s

8-PMCs +

2-LD3s

15 LD8s

4-PMCs +

7-LD3/8s

Trade Patterns and the Future of

International Air Cargo

↗Frederick W. Smith

↗ Chairman and Chief Executive Officer of

FedEx Corporation

12

Asian Tigers and Japan

13

Japan South Korea

Taiwan Hong Kong

Singapore

Boeing 747-100

Export Trends for Top FedEx Markets Exports from some of these countries have been slowing down since CY2010 (YOY% Total Export Value in USD)

Source: IMF, National Authorities

Air Cargo Traffic And Semiconductor Billings

Semiconductors are a vital component of

complex electronics like PCs and cellular

phones – products often carried by air cargo

2012 Avg

Semiconductor

Forecast

Strong correlation between air cargo traffic and semiconductor billings

Oil Prices Over Past 4 Decades

Source: U.S. Department of Labor: Bureau of Labor Statistics

FedEx 777F

All Other, 21, 1% 777F, 86, 5%

767-200s, 70, 4%

767-300s, 107, 7%

747-100s, 51, 3%

747-200s, 171, 11%

747-400s, 249, 16%

747-8F, 47, 3%

A 330-200F, 25, 2%

A 310 Family, 86, 5%

A 300 Family, 262, 17%

DC/MD-10s, 231, 15%

MD-11 Family, 180, 11%

21

Widebody Freighter Aircraft All-Time

Source: Jan ‘14 OAG/BACK database

22

Widebody Freighter Aircraft Active

Source: Jan ‘14 OAG/BACK database

777F, 86, 8%

767-200s, 64, 6%

767-300s, 105, 10%

747-100s, 9, 1%

747-200s, 30, 3%

747-400s, 200, 18%

747-8F, 46, 4%

A 330-200F, 25, 2%

A 310 Family, 39, 4%

A 300 Family, 197, 18%

DC/MD-10s, 132, 12%

MD-11 Family, 153, 14%

Freight Traffic Growth

Source: IATA, ACI

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

2003

M1

2003

M4

2003

M7

2003

M10

2004

M1

2004

M4

2004

M7

2004

M10

2005

M1

2005

M4

2005

M7

2005

M10

2006

M1

2006

M4

2006

M7

2006

M10

2007

M1

2007

M4

2007

M7

2007

M10

2008

M1

2008

M4

2008

M7

2008

M10

2009

M1

2009

M4

2009

M7

2009

M10

2010

M01

2010

M04

2010

M07

2010

M10

2011

M01

2011

M04

2011

M07

2011

M10

2012

M01

2012

M04

2012

M07

2012

M10

2013

M01

2013

M04

2013

M07

2013

M10

Worldwide Airfreight Capacity Growth

vs. Freight Tonnage Growth (YOY)

Tonnage growth exceeds capacity growth

Capacity growth exceeds tonnage growth

Current Freighter Capacity Growth

Exceeds Demand

Source: IATA

Focus of analysis

World International Air Express, Air Freight, and Ocean Freight Revenue Mix

10%

31%

59%

12%

25%

63%

1994 2004 2012

International

Air Express

Dry

Cargo

Ocean

International

Air Freight

6%

38%

55%

CAGR 14%

CAGR 6%

CAGR 9%

CAGR 6%

CAGR 1%

CAGR 6%

% revenue mix of international air express and ocean cargo has been increasing in the period CY 1994–2012

International air freight revenue mix has been declining in this period

Source: Boeing Air Cargo Forecast, Global Insight, TSA estimates, ACMG & FedEx Analysis

($ Billions)

23% Protectionism

is up

since 2009

World Trade Volume vs. Global Real GDP

• During the globalization of manufacturing, trade grew 2-3 times faster than GDP

• In 2012 and 2013, trade volumes failed to grow at their historical rate

• Since the “Great Recession,” trade has been steadily improving but not at the prior pace

Source: CPB Netherlands Bureau for Economic Policy and Analysis, Economic Intelligence Unit, FedEx Corporate Economics

90

100

110

120

130

9

10

11

12

13

14

15

inde

x of

wor

ld tr

ade,

200

5=10

0

Bill

ion

FT

Ks

World Trade in Goods vs. Air FTKs (Seasonally Adjusted)

World Trade Index (Index 2005=100) International FTKs SA

Source: Netherlands CPB and IATA

Industry Context

Modestly Improving Volumes…

0.8

1.1

1.4

1.7

US

$ p

er

kilo

Air Freight Yields (US$ per kilo)

…and Weak Rates

The Year in Review:

Did we deliver on promises made?

↗Desmond Vertannes

↗ Global Head of Cargo, IATA

30

Join the celebration, join the conversation!

www.flying100years.com

Game Changing Innovation

32

Change is needed

↗ Static volumes 2010

to 2013

↗ Revenue decrease

from $67 billion to

$60 billion

33

Our Challenges

↗ Efficiency

↗ Security

↗ Sustainability

34

The path to paperless

We missed our e-AWB target

We wanted 20%....we reached 12%

However, some progress was made

35

Our Achievements

↗ Multilateral e-AWB Agreement

↗ ACC3 – CEIV

↗ e-CSD

↗ Lithium Battery Guidelines

↗ ULD Regulations

36

Environment

↗ Carbon Calculation Methodology

adopted by the Cargo Services Conference

37

Value Enhancing in 2014

↗ Quality ↗ Facilities Matrix

↗ Industry Master Operating Plan (MOP)

↗ 22% e-AWB target

38

Industry Collaboration

↗ Modernization of the Cargo Agency Program

↗ GACAG

↗ Security

↗ e-Commerce

↗ Trade facilitation

↗ Sustainability

39

Call for Action ↗ Using the tools at our disposal

↗ Applying efficient processes

Let’s reduce the average end-to-end time up to 48 hours

by 2020

40

“What was impossible yesterday is an

accomplishment of today, while

tomorrow heralds the unbelievable.”

Percy Fansler

41

THANK YOU

42

Coffee Break Sponsor

No Roads? There’s a Drone for that

↗Andreas Raptopoulos

↗ CEO, MATTERNET

44

Weak World Trade and On-shoring:

Permanent or temporary?

↗Brian Pearce

↗ Chief Economist, IATA

45

46

Why the divergence?

IATA Economics www.iata.org/economics 47

Source: ICAO (history), IATA

(forecast)

25

35

45

55

65

75

85

150

200

250

300

350

400

450

500

550

600

650

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

US

$ bi

llion

US

$ bi

llion

Airline revenues from passengers and cargo

Passenger revenue

Cargo revenue

It’s partly yield…more on this later

IATA Economics www.iata.org/economics 48

24

28

32

36

40

70

75

80

85

90

95

100

105

110

115

120

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

US

cen

ts/R

even

ue to

nne

kilo

met

er

US

cen

ts/R

even

ue to

nne

kilo

met

er

Passenger and cargo yields

Passenger yield

Cargo yield

Source: ICAO (history), IATA

(forecast)

3 year demand divergence exceptional

IATA Economics www.iata.org/economics 49

Source: IATA

6

8

10

12

14

16

18

20

22

150

200

250

300

350

400

450

500

550

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

FTK

bill

ion

RP

K b

illio

nPassenger and freight volumes

RPKs

FTKs

9-11SARS

Financial crisis

Modal shift?

IATA Economics www.iata.org/economics 50

0.85

0.90

0.95

1.00

1.05

1.10

1.15

1.20

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

Air freight share of world trade (FTK/WT ratio)

Trend FTK growth ~2% p.a. < world trade growth

Low point of world industrial output cycle

High point of world industrial output cycle

Source: IATA, Datastream

On-shoring?

IATA Economics www.iata.org/economics 51

0.8

1.0

1.2

1.4

1.6

1.8

2.0

1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

International trade volumes relative to domestic industrial output (WT/IP)

Globalization / off-shoring

On-shoring / protectionism?

Source: IATA, Datastream

Trade growth now 1x not 2x domestic output

IATA Economics www.iata.org/economics 52

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

% ch

ange

yea

r-on-

year

World trade and industrial production growth

World trade growth (avg. 5.6% pa)

Industrial production growth(avg. 2.8% pa)

Source: Datastream

Resist protectionism/ implement Bali

Almost 500 protectionist measures taken in 2012

IATA Economics www.iata.org/economics 53

Source: Global Trade Alert

Number of

measures

But some on-shoring permanent

IATA Economics www.iata.org/economics 54

2

3

4

5

6

7

8

9

10

11

12

0

50

100

150

200

250

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Hen

ry h

ub g

as p

rices

, US

$/m

mbt

u

Uni

t lab

our c

ost,

2000

=100

China's labour costs and US gas prices

China's unit labour costs

US gas prices

Source: Haver

Squeezed from top and bottom

IATA Economics www.iata.org/economics 55

0.8

0.9

1

1.1

1.2

1.3

1.4

1.5

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

2005 2006 2007 2008 2009 2010 2011 2012 2013

Rat

io o

f FTK

s to

WT

Maj

or in

tegr

ator

s' s

hare

of i

nter

natio

nal F

TKs

Major integrators' share of FTKs and FTKs share of international trade

Major integrators' share of international FTKs

Air FTKs share of international trade

Source: IATA, Datastream

Not all markets are weak

IATA Economics www.iata.org/economics 56

Source: Datastream, IATA

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

2008 2009 2010 2011 2012 2013

% c

hang

e ov

er y

ear

Growth of international trade and e-commerce

E-commerce growth

International trade growth

Jet fuel price still within range

IATA Economics www.iata.org/economics 57

0

20

40

60

80

100

120

140

160

180

200

2008 2009 2010 2011 2012 2013 2014

Jet kerosene and crude oil price, $/barrel

$140/b

$110/b

Jet kerosene price

Brent crude oil price

Source: RBS, Platts, IATA

CNG climate deal implementation critical

IATA Economics www.iata.org/economics 58

450

550

650

750

850

950

1050

1150

20 000

25 000

30 000

35 000

40 000

45 000

50 000

55 000

60 000

1990 1995 2000 2005 2010 2015 2020 2025 2030 2035

Avia

tion

CO2,

mill

ion

tonn

es

Glob

al C

O2 fr

om fu

el b

urn,

mill

ion

tonn

esGlobal vs aviation CO2 emissions

Aviation CO2

Without CNG +2.5% p.a.

Global CO2

Current policies+1.4% pa

New policies+0.7% pa

450ppm scenario-1.7% pa

Source: International Energy Agency

Capacity still growing

IATA Economics www.iata.org/economics 59

2500

2700

2900

3100

3300

3500

3700

Num

ber o

f airc

raft

Cargo fleet composition

End of month totalsEnd of year totals

Wide-body passenger aircraft

Freighters

Source: Ascend

Asset utilization bottoming out

IATA Economics www.iata.org/economics 60

Source: IATA, Boeing, all data seasonally adjusted by IATA

7.50

8.00

8.50

9.00

9.50

10.00

10.50

37%

39%

41%

43%

45%

47%

49%

51%

53%

2008 2009 2010 2011 2012 2013 2014

Frei

ghte

r airc

raft

utili

zatio

n, a

vera

ge d

aily

hou

rs

Wei

ght l

oad

fact

or, %

AFT

KAir cargo asset utilization

Freight load factor

Freighter aircraft utilization

But no sign of yields bottoming out yet

IATA Economics www.iata.org/economics 61

Source: IATA CASS

1.80

1.90

2.00

2.10

2.20

2.30

2.40

2.50

2.60

2010 2011 2012 2013 2014

US

$ pe

r kilo

Global average cargo yield, including surcharges

seasonally adjusted

Pressure on cargo yields may not be over

IATA Economics www.iata.org/economics 62

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Tonnes of new cargo capacity from aircraft deliveries

Pax fleet new belly capacity

Freighter fleet new capacity

Source: IATA, Ascend

But the cycle is turning up

IATA Economics www.iata.org/economics 63

30

35

40

45

50

55

60

65

70

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

PM

I ind

ex le

vel,

50=n

o ch

ange

% c

hang

e ov

er y

ear

Global industrial production, trade and business confidence

International trade

Businessconfidence

Industrial output

Source: Datastream

And it doesn’t look like another ‘false dawn’

IATA Economics www.iata.org/economics 64

11

12

13

14

15

16

17

18

30

35

40

45

50

55

60

2008 2009 2010 2011 2012 2013 2014

FTK

s bi

llion

Bus

ines

s co

nfid

ence

inde

xFTKs and business confidence

Source: Datastream, IATA

Business confidence

FTKs

Even Asia is now seeing some growth

IATA Economics www.iata.org/economics 65

80

90

100

110

120

130

140

150

160

2010 2011 2012 2013 2014

Inde

xed

to 1

00 in

May

201

0FTKs by region of airline registration

Middle East(+45%)

Africa

Latin AmericaEurope

North America

Asia-Pacific(-12%)

Cycle peak for market total

Source: IATA

To conclude

Modal shift is happening

But weak world trade is the new problem

Must reverse protectionism and implement Bali

Even so long-term growth is likely to be lower

Fuel costs stuck in a range

But need to see CNG implemented to avert threats

Pressure on yields may not be over

But the demand cycle is turning up

And it looks more durable and widespread this time

IATA Economics www.iata.org/economics 66

Modal Choice:

What drives the decision process?

↗Gert-Jan Jansen

↗ Executive Director, Seabury Group

67

68

69

70

71

72

73

74

75

76

77

78

79

80

81

82

83

84

85

Panel discussion on Modal Choice Moderator

↗ Enno Osinga, SVP Cargo, Amsterdam Schiphol Airport

Panelists

↗ Christo van der Meer, Senior Consultant Supply Chain Development

Operations Manager Flowers &Sea, FloraHolland

↗ Maria Dorazio, Head of Cold Chain Logistics, Novartis

↗ Michael Blaufuss, SVP Airfreight, Agility Logistics

↗ James Woodrow, Director Cargo, Cathay Pacific

86

Networking Lunch Sponsor

Air Cargo Security:

Are we ready for ACC3?

↗Mike Woodall

↗ Head, Independent Validation and Regulatory

Engagement, IATA Cargo

88

89

90

91

92

93

94

95

96

Panel discussion on ACC3

Moderator

↗ Chris Notter, Consultant

Panelists

↗ Martin Jones, Head of Aviation Security, UK Department for Transport

↗ Tleli Makhetha, General Manager, South African Airways Cargo

↗ Kester Meijer, Director Operational Integrity, KLM Cargo

97

Air Cargo and the Environment:

Are we doing enough? Moderator

↗ Nigel Tomkins, Managing Director & Editor Air Cargo Media Ltd

Panelists

↗ Cindie Blackmer, Sr. Mgr., Global Logistics Sourcing and Supplier Mgmt, Intel.

↗ Robbie Anderson, President United Cargo

↗ Mitch Nichols, President, UPS Airlines

98

99

100

101

102

103

Conclusions and the Week at Glance

↗Desmond Vertannes

↗ Global Head of Cargo, IATA

104

Coffee Break in Exhibition