“C T d d h h C“Cargo Trends and what the Cargo …€œC T d d h h C“Cargo Trends and what the...
Transcript of “C T d d h h C“Cargo Trends and what the Cargo …€œC T d d h h C“Cargo Trends and what the...
“C T d d h h C“Cargo Trends and what the Cargo Executives think will shape the
revenue recovery in 2010”revenue recovery in 2010
M Nik HMr. Niko Herrmann, Partner, Oliver Wyman
6
S t d bSupported by:
March 2010
“Vi f th T ”“View from the Top”Global Air Cargo CEO Survey
Niko Herrmann, Partner
C O N F I D E N T I A L | www.oliverwyman.com
Survey ParticipantsWe targeted the top 50 cargo-carrying airlines as well as key industry players and got an outstanding 50% response rate
Participants by region Participant characteristics
3%3%Europe
Russia
Participants by regionAfrica
Participant characteristicsStrong coverage of global leaders in air cargo– 60% of top 10
North America
36%16%
6%3%3%
Latin America
– 60% of top 10– 55% of top 20– 36% of top 50– overall more than 30 surveys and
America
17%
– overall, more than 30 surveys and interviews
Even split between16% ll i
19%17%
Asia
Middle East
– 16% all-cargo carriers– 32% belly carriers– 52% combination carriers
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Asia
The recovery (1/4)Cautious confidence is the prevailing assessment of early signs of recovery in the cargo market
Confidence: Concerns:“Recovery is still fragile”“Low growth on low base”“While the growth begins, 2010 will be a
“We are out of the worst”
“Upswing will last, but will be modest”
year during which things settle”Unstable economies in some European countries are having a negative effect on an otherwise positive outlook
“Strength of upswing will differ across regions – Asia will lead“
Q4 2009 was strong, short-term on an otherwise positive outlook“Consumer behavior has changed to saving rather than spending, confidence still unstable, as jobless rates soar”
g,inventory replenishment”
“2010 seems to continue as end of 2009 with strong traffic levels”
“Pressure on yields will continue, extremes of Dec 09 unsustainable”“I don’t see any economic reasons for a
b thi ”
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cargo boom this year”
The recovery (2/4)Not surprisingly, most CEOs are still somewhat cautious about the recovery for the overall cargo market…
Q: Do you expect a lasting positive trend for the air cargo industry?
39%
55%Percent of replies
39%
6%
Current rebound is No substantial growth, Lasting temporary, relapse into a recession in 2010 is likely
but also no further decline in 2010
upswing for air freight in 2010
“I think the global economy still has to recover; while growth will begin, 2010 will still be a
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I think the global economy still has to recover; while growth will begin, 2010 will still be a year during which things settle.”
The recovery (3/4)… but are substantially more bullish when looking at their own business!
Q: How do you see your business developing in 2010? Much betterBetter
Percent of replies
0%
SameWorse
40%23% 16% 10%
0%
86% “better”
43%67%55% 76%
86% better or “much better”
17%26%
10%4%3%0% 10%
Volume Yields Costs Margins
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Volume Yields Costs Margins
The recovery (4/4)94% of CEOs expect to reach 2007 revenue levels again before 2013 – much sooner than reported in most of the trade press
Q: When do you expect to reach again revenue levels as in 2007?
48%
Percent of replies
38%
3%3%7%
2010 2011 2012 2013 2014+
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94%
Where the volume growth will come fromUnsurprisingly, CEOs expect the highest growth to come from from AsiaMarket growth expectations by region (distribution of answers)
+ ++o---
China & North Asia !
Asia Pacific
Latin America
!
!
Russia / CIS
Africa
!
!
!
MENA
Europe
North America
!
!
!
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MENA !
! = expected future sales push= distribution of answers, total = 100%
Yield – a more tepid recoveryFor yield recovery, the expectations are more or less evenly distributed between flat and moderate growthYield growth expectations by region (distribution of answers)
China & North Asia
+ ++o---
Asia Pacific
Latin America
Russia / CIS
Africa
MENA
Europe
North America
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MENA
= distribution of answers, total = 100%
Crisis strategies Customer first? Only 1/3 of participants explicitly mentioned customers as the focus of their recovery strategies
Strategies to fight the crisis (as mentioned by: percent of participants)
Productivity improvement
Network management
67%
47%Network management
Fixed cost reduction
47%
43%
40%Capacity reductions
Product portfolio changes
40%
37%
37%Customer initiatives
Pricing/Yield Management
33%
30%
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Products Cold Chain and Pharma are widely expected to lead the recovery in both volume and yieldGrowth expectation by product category (average)
+ ++o-
Cold Chain
Express
Pharmaceuticals
Perishables
Electronics / IT
Valuables
General Cargo
Volume
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Mail Yield
What sells?Nothing new on this front – the crisis hasn’t changed customers’ eye for quality and reliability, but sharpened focus on pricing
Expected changes in importance by product category and service attribute (average of responses)service attribute (average of responses)
General Cargo
Price Speed On Time Handling
+ o o oGeneral Cargo
Express
+
+
+
o
+
o
o
+
o
o
o/+
oTemp. / Cold Chain o/+ + + + + +Pharmaceuticals + + + + + +Perishables + o/+ + + +
Valuables o o o +
Electronics / IT + o/+ + +
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Valuables o o o +
Investments E-freight remains the No. 1 investment priority – with Security and Cold Chain capabilities following somewhat closely
Important innovations for competitiveness? Short-term invest focus
E-freight
+++o
67%
Percent of respondents
Security improvements
Cold chain capabilities
40%
43%
Enhanced traceability
CO2 emission reduction
37%
30%
Lightweight containers
Special handling facilities
40%
27%
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Green warehouses 20%
Competition from oceanThe slowdown of supply chains has shown viable alternatives to customers – not all of this is likely to reverse again
Q: Do you expect a lasting change in customer decision behavior?
64% 71%
Percent of replies (multiple answers possible)
11%11%
Expect customers to be even more price
Customers will more carefully evaluate the
Customer behavior will be no different than p
sensitive in the future y
benefit of air transport before the crisis
“With the advantages of good speed and reliability, ocean shipping is expected to ti th i l tl titi ith i A id bl ti f t i
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continue their relentless competition with air cargo. A considerable portion of current air cargo volume is predicted to go ocean in the future.”
Airline responseThe search continues for lasting high-yield niches
Q: How do you intend to change your product portfolio?
68%61%
Percent of respondents (multiple answers possible)
14%14%
Strengthening of premium products (e g
Increase of value added products (e g time-
Reduction of portfolio complexity purepremium products (e.g.
express / valuables)products (e.g. time-definite, guaranteed)
complexity, pure commodity service
“The air cargo market has matured, and efforts are required to meet customer needs d i th titi Th f th h f hi h fit d t (f
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and survive the competition. Therefore, the share of high-profit products (frozen, refrigerated, express, pharmaceuticals, etc.) will expand.”
Forwarder relationshipsSome resentment, some realizations, but mostly the professional partnerships survived the acrimony of the crisis
Relationship quality (distribution of answers)
36%
18%18%
28%
Established new partnerships with different forwarders
Focus on the key forwarders has helped forge
deeper relations
Relations have deteriorated as
forwarders squeezed airlines
Relationships remained
unchanged with our key partners
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p qharder
y p
Industry consolidation (1/2)Most CEOs expect a tough consolidation as a result of the crisis, but are actively pursuing partnerships in the near termExpectations of participantsPercent of respondents
Planned activityPercent of respondents
Increased
Percent of respondents (multiple answers possible)
Actively
Percent of respondents
Increased M&A 52% looking for
M&A
Actively
20%
More alliances/ partnerships
39%
Actively looking for alliances/partnerships
48%
Increased vertical integration
32%No activity planned 32%
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integration
Industry consolidation (2/2)The industry is further polarizing into fewer, larger carriers that have the financial, network, and experience strength to survive
Opportunities and Threats pp“CX-CA will be mega-deal”
“Most small niche freighter carriers will become extinct, not sustainable through economic cycles”through economic cycles
“Partnerships with integrators are way forward – DHL very active, what about UPS and FedEx?”
“Th i d t i tti f i l ll l ill it“The industry is getting more professional, smaller players will exit as financing gets tougher, customer demand stronger service”
“Alliances are a key component for a smaller airline’s expansion”
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Future of freighter operatorsConsolidation will be especially focused in the area of freighters
Q: What does the future for freighter versus belly cargo look like?
81%
Percent of respondents (multiple answers possible)
7%22%
Only a small number of strong, global freighter operators will remain.
More belly carriers will enter into the freighter
business
More small cargo-only airlines will likely evolve along dedicated traffic
lanes
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lanes
Larger freightersMore than half the operators intend to focus future fleet decisions on larger aircraft, e.g., B777F or B747-8F
Future fleet decisions (n=20)Future fleet decisions (n 20)
Focus on smaller, midsize freighters 16%
No major
freighters
F l56%
8%
20%changes planned
Focus on large freighters
8%
Reduction of number of f i ht i ft
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freighter aircraft
Green cargoETS is perceived primarily as an added cost to be passed on
ETS change to air cargoPercent of respondents
Perceived advantagePercent of respondents
Impact on fleet decisions
p(multiple answers possible)
p
Decreased competitivenessdue to increased cost pressure / fleet disadvantagefleet decisions,
focus on fuel efficiency
Declining
71%13%
g
Declining margins, as carriers can't forward costs
29%87%
Accelerated consolidationdue to rising 19%
Increased competitiveness due to young fleet and already green business model
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gcost pressure business model
Lessons learned (1/2)Most participants desire to increase financial flexibility, apply more conservative business planning, and diversify risk in the future
Top answers on “lessons learned”Top answers on lessons learned
Increase financial 64%
Percent of respondents (multiple answers possible)
Apply more conser-vative planning
Increase financial flexibility 64%
54%vative planning
Further diversify risk 54%
Pursue closer rela-tions with forwarders 46%
43%Pursue closer rela-
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43%tions with shippers
Lessons learned (2/2)Speed is key in reacting to a crisis of such magnitude
Comments“Decisive and fast reaction has been key; opportunistic dithering has cost many carriers millions”
“We're strengthening our risk management practices by setting up processes to perceive danger signs in advance and take prompt action at an appropriate time.
“Creativity and flexibility in internal processes are organizational capacities that need to be acquired – best before the next crisis”
“The industry needs to unite again on key issues; everyone was desperately fighting on their own, need to get more active as a group again”
“In order to add value, express cargo such as door-to-door is going to be important. To make this come true, cooperation between carries will be a significant factor. “
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Obstacles Will air cargo achieve a fast return to sustainable industry profitability?
The biggest obstacles in our industry are still…
Commoditization of air freight and 84%
Percent of respondents (multiple answers possible)
air freight and competitive pressure
Increasing cost
84%
55%burden or regulation
Lack of appropriate tools and techniques
55%
42%qto manage margin
Lack of talent in the industry
42%
19%
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industry 19%
Conclusion
Industry expects cautious “return to normal”
The environment is getting increasingly tough especially for carriers whoThe environment is getting increasingly tough, especially for carriers who once thought cargo could easily “de-risk” P&L and B/S– How to become more nimble and flexible and responsive ahead of the
next downturn?
More carriers start to think whether they have the critical mass and the market/network strength to get the best out of their capacity– Adam Smith – should you continue to be involved in air cargo?y g
What can you do to escape continued commoditization?– Value-added products become the new commodity – how to differentiate
your product portfolio?your product portfolio?– Specific bilateral partnerships will be increasingly important – who to
work with? Under what economic/operating model?
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