Air Cargo Session: Evolving Market and Cargo Flow

Transcription

1 strategic transportation & tourism solutions Air Cargo Session: Evolving Market and Cargo Flow Dr. Michael W Tretheway Chief Economist, InterVISTAS Consulting Group ACI-NA and pals Air Cargo Conference 1 June 2011

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3 strategic transportation & tourism solutions The Carbon Footprint of Air Cargo

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6 Spiritual Messaging "Making selfish choices such as flying on holiday or buying a large car are a symptom of sin. "Sin is not just a restricted list of moral mistakes. It is living a life turned in on itself where people ignore the consequences of their actions." Richard Chartres Bishop of London

7 Sophisticated Messaging on Roads & Rail Routes to LHR

8 Coming Soon to North America Climate Change issue is not confined to Europe North American attitudes are shifting rapidly Aviation will be targeted

9 Food Miles A popular measure of carbon footprint The distance food travels from production to consumption Some products now carry food mile labels Concept has been embraced, in part, by Walmart, Tesco and others Tesco is #3 retailer in world Walmart, Carrefour, Tesco An easy to understand measure 8

10 Food Miles UK study: Average distance food travels: miles Distance increased 25% from 1980 to

11 Food Miles a Misleading Metric FM only measures farm gate to consumer But there is also transport to the farm gate Fertilizer Grain to feedlot Grain transport is often over enormous distances Cattle to production facility 10

12 Food Miles a Misleading Metric If carbon footprint is the issue Then measure the entire carbon chain US Study: farmgate to consumer only 17% of footprint Heavy emitters in food chain Production of fertilizer Especially energy using Some growing regions need little fertilizer Transport of fertilizer Production and transport of feedgrains Energy for hothouses Source of farm/fertilizer energy (hydro vs. coal) 11

13 Example: UK vs NZ Lamb Source: Kasarda & Lindsay, Aerotropolis Lamb consumed in UK NZ sourced lamb has 25% the carbon footprint NZ long transport distance Some product shipped by air UK uses large amounts of fertilizer for pastureland Milk Large carbon footprint of production NZ hydro based power Vs coal based electric production 12

14 Flower Example Source: Adrian Williams, Cranfield University Roses sold in UK Two sources: Netherlands Kenya (via Netherlands auction market) NL roses have 6 times the carbon footprint Kenya: Higher transport distance Use of air transport But Netherlands grows in hothouses Netherlands uses fertilizer drips (high production energy) 13

15 Carbon and Social Impact Globalisation is part of increasing food miles But Kenya s economy has shifted Flowers, fruits, vegetables Higher value added than coffee/tea now one-third of exports And 20% of total economic activity 14

16 Challenge For Air Cargo Need to develop more meaningful measures of carbon footprint ISO (Life Cycle Assessment) Document total carbon footprint Transport of all materials to production site Seed, fertilizer, pesticide, etc. Energy use in production of materials Packaging (air transport uses less) Carbon emission at production Transport Production to Market Cooling energy use (12 hour flight vs 3 week by marine container) Transport Market to consumer delivery to home may have lower footprint than frequent driving to store 15

17 Carbon Forecast of Aircraft Global Aircraft Emission Projections Hypothetical Scenario Traffic pa Index ( ) Offsets "Normal Emission Reduction per RPK Offset reduction effect Effect ETS Normal emission reduction 797/A360 Y3 aircraft remaining emissions 737/A320 replacement Widebody replacement 0.50 Remaining Carbon

18 strategic transportation & tourism solutions Fuel Prices

19 Spot Prices, West Texas Intermediate, Constant 2008 Dollars $140 $120 $ US$/Barrel $80 $60 $40 $20 $ Source: Spot West Texas Intermediate, 1947 to

20 $160 $140 $120 $100 $80 $60 $40 $20 $- 19 U.S. $ per barrel Jan/03 Mar/03 May/03 Jul/03 Sep/03 Nov/03 Jan/04 Mar/04 May/04 Jul/04 Sep/04 Nov/04 Jan/05 Mar/05 May/05 Jul/05 Sep/05 Nov/05 Jan/06 Mar/06 May/06 Jul/06 Sep/06 Nov/06 Jan/07 Mar/07 May/07 Jul/07 Sep/07 Nov/07 Jan/08 Mar/08 May/08 Jul/08 Sep/08 Nov/08 Crude Oil Spot Prices January 2003 to January 2009

21 $160 $140 $120 $100 $80 $60 $40 $20 $- Fuel Prices 20 U.S. $ per barrel Jan/07 Mar/07 May/07 Jul/07 Sep/07 Nov/07 Jan/08 Mar/08 May/08 Jul/08 Sep/08 Nov/08 Jan/09 Mar/09 May/09 Jul/09 Sep/09 Nov/09 Jan/10 Mar/10 May/10 Jul/10 Sep/10 Nov/10 Jan/11 Mar/11 May/11 Crude Oil Spot Prices January 2007 to May 2011

22 Medium Term Oil Price Forecast Consensus Economics Oil Price Forecast $120 $100 $80 US$ $60 $40 $20 $

23 Oil Price Forecast Consensus Economics Oil Price Forecast $120 $100 $80 US$ $60 $40 $20 Its not down Its not back to $145 $

24 2 Sigma Range of Forecasts Forecast 95% ranges $120 $100 $80 $60 $40 upper 2 sigma average low er 2 sigma $20 $

25 2 Sigma Range of Forecasts Forecast 95% ranges $120 $100 $80 $60 $40 $20 Everyone seems to agree upper 2 sigma average low er 2 sigma $

26 2 Sigma Range of Forecasts $120 Note the scale Forecast 95% ranges $100 $80 $60 $40 $20 Everyone seems to agree upper 2 sigma average low er 2 sigma $

27 If History Repeats. $300 Note the scale Oil Price with Full Historical Range $250 $200 $150 $100 Upper range Base price forecast Lower range $50 $

28 Consequences of Fuel Increase Will accelerate shift adoption of efficient aircraft Somewhat less impact on low utilisation freighters Will affect decision on 737/A320 replacement At $100 oil, engine update A320neo At $175, new aircraft Boeing Yellowstone 1 (797?) 27

29 strategic transportation & tourism solutions Global Economic Shift

30 Global Economic Shift US$ Trillion North America Japan 4 6 China 1 26 India Brazil China is already A larger economy than Japan A larger generator of tourists than Japan 29

31 Value of Goods Shipped by Air Two views Japan: 31% US: 26% Canada 10% Air Capacity should follow economic growth Air Capacity enables economic growth US has the most liberal international air policies in the world Except for foreign ownership Canada now has one of the most restrictive international air policies in the world 30

32 Slower Growth? 2010 Hamburg Aviation Conference Pax growth in coming decade likely to be less than historic Less than previously forecast Climate change Recovery of personal liquidity Markets maturing Perhaps 3.5% vs. 5% There was no consensus regarding air cargo 31

33 Changing Flows The most important change is Asia Both China and India will achieve extraordinary growth Both growing faster than any previous economy They are making massive infrastructure investments India has a severely limited highway network Improvements will be slow It has a massive rail network (largest in the world), but with poor supply chain ratings China has a growing, modern highway network Now has more high speed pax rail than any other country Both countries generating massive cash from exports Available to finance infrastructure and service 32

34 Asia Fastest air cargo growth in coming decades will be intra-asia Second fastest will be to/from Asia China: airport infrastructure will not be a constraint India more problematic But also massive growth in Chinese Taipei SE Asia Korea Not Japan, but it can gateway traffic 33

35 Europe New EU Transport Policy released Climate Change is important target is 40% reduction in carbon footprint 2050 target but curbing mobility is not an option or obstacle to growth This is a truly significant policy announcement Targeting increased efficiency in surface transport for cargo 34

36 Maritime Competition Past two decades have seen global focus on gateway ports Improving port capacity and efficiency Greatly improved rail-port, rail-highway interfaces Have cut 2 days off total transit time at each end where investment or realignment made Air cargo has not seen a similar improvement And has lost supply chain competitiveness 35

37 strategic transportation & tourism solutions Air Cargo Traffic and Supply Chain Management

38 Traditional Air Cargo Forecasting Simple: Use historical data on air cargo and forecast on trends Advanced Develop economic model that recognizes role of price Air cargo real yields decline 1% per year A gain over other modes Driver of higher air cargo traffic Sources: Economies of scale More efficient aircraft technology Larger belly space in pax aircraft 37

39 What we learned in 2008 Air cargo demand is only one part of supply chain management decisions Key variables: Interest rates Prices of different forms of transport Uncertainty in demand Existing inventories High interest rates was a key driver of air cargo More expensive to hold inventory So low stocks, supplement by air in whole or in part 38

40 What we learned in 2008 Air cargo demand is only one part of supply chain management decisions 2008: Interest rate collapse Cost of holding inventory dropped dramatically High inventory reduced need for air resupply Marine transport price collapse All combined to shift SCM away from air cargo 39

41 The Future Until 2000s, global air cargo had never declined Future: air cargo will become cyclic Possibly pro-cyclic When economic recession arrives Air cargo will likely drop quickly What are future interest rates? If interest rates rise, air cargo demand could surge Can you spend an additional $1trillion and not get inflation? 40

42 strategic transportation & tourism solutions Thank You