1. 2006 AAFA – Logistics Session 2 Air Cargo – How accurate were the projections in 2005? What were the surprises? What do we predict for 2006?

2. 2005 What We Expected Double digit growth in 2004 led to bullish expectations in 2005. The elimination of the Quota system as a barrier and cost to international trade to create increased global demand for air cargo and particularly from China and the Indian subcontinent. Early surge of air cargo in January 2005 resulting from the elimination of Quota but that traditional peak season from August to December. Continued consolidation of routes serviced by the major carriers. During the post 9/11 era, with air carriers reporting record losses, codesharing and alliances between carriers would result in restructured capacity.

3. 2005 What We Expected Early surge of air cargo in January 2005 resulting from the elimination of Quota but that traditional peak season from August to December. Reduced delays due to security/ams issues. Continuing shift to just-in-time production in the fashion industry.

4. 2005 – What Happened The BIG surprise: Oil, vey. The fuel surcharge went from usd$0.10/kilo up to as high as usd$0.73/kilo. Costs were up more than 25%. Resulting in negligible growth in the air cargo industry. January 2005 air cargo increased dramatically with HKG growth over 10 percent. January 2005 also saw a surge from Pakistan as the Pakistan government underwrote the cost of air freight for cargo that embargoed in 2004. As expected, quota re-imposed on China. This created an early surge in air cargo prior to the traditional fall peak season. Companies were forced to re- source production for fall and holiday. This in turn created backlogs in SE Asia as Vietnam and Indonesia led the way in taking up these orders. Despite sluggish growth, the preceding years of strong growth continued to keep prices for the base air freight rates stable. Continued delays in cargo availability as carriers and forwarders adjusted to AMS security issues.

5. Source: ICAO World Air Cargo Demand Calendar Years 2000 – 2005

6. World Air Cargo Traffic Reached New Record Levels in 2005 Sources: U.S. Department of Commerce, AAPA, AEA, ATA and the Boeing World Cargo Forecast. 2000 2001 2002 2003 Billions of RTKs 2004 2005

8. 2006 – What We Expect Based on early 2006 figures, a strong rebound in air cargo growth led by China, India, and Vietnam. In IATA’s most recent projection, air cargo growth worldwide for 2006 is estimated at 6.8%. Despite the growth of air cargo, pricing pressure will increase as the differential in pricing between air and ocean will be more substantial due to the increased capacity of the post-Panamax vessels. Fuel pricing to stabilize – however, a word of caution, for the peak season (August~December) as a strong hurricane season is expected. Potential embargo issues with Vietnam and China. Strong demand in Southwest Asia. Currently there are critical backlogs from Bangladesh and Sri Lanka. Delays due to new security initiatives to be announced by the FAA as the air cargo industry continues to adapt to the regulations. The “Air Cargo Final Rule” is in executive clearance and is expected to be released within a few months.

9. Average annual growth percentage 2003 to 2023 High7.4% Base6.2% Low5.0% 6.1% growth per year RTKs, billions History Forecast Air Cargo Growth Global traffic will triple over the next 20 years Source: Boeing World Air Cargo Forecast 2004/2005

10. 2006 – What Can Be Done Importers and their service providers need act in partnership. Sharing of information, technology, etc… Expectations must be realistic. Like traveling for Thanksgiving, if you try to book your tickets the day before the holiday, you’ve got a problem. Try to provide your carriers as much information ahead of time as you can. Think about air forwarders like travel agents for boxes. Direct flights are not always available. Connections are inevitable. Overbooking is inevitable. Keep an eye on the Quota fill rates in China and Vietnam. Be prepared. When projecting costs – especially in light of the potential for fuel spikes in the late summer – project fuel price increases comparable to 2005.