HSH Nordbank sector study: airfreight market continues on a growth course

Hamburg/Kiel, December 12, 2007 - The airfreight market will continue to be one of the global growth sectors over the next few years. According to a recent study by HSH Nordbank AG, medium to long-term forecasts by market participants expect further growth in the airfreight sector. The greatest impact on the airfreight market comes from the trends within the global economy and global trade. In this context, HSH Nordbank is projecting long-term global trade growth of seven percent p.a.

Asian connections showing the strongest growth

At present, nearly 40 percent of global trade in terms of the value of goods are transported via airfreight. The strongest growth in revenue-ton kilometers (RTK) is recorded on intercontinental routes, particularly between Asia/Pacific and Europe or North America. “As a consequence of further production relocations and above-average growth prospects for the region, it is expected that by the year 2025 almost 63 percent of all exports and imports will originate in, or be destined for, Asia/Pacific”, stated Claudia Erdmann, HSH Nordbank sector analyst. In particular, the growth of the Chinese airfreight market is the driver of the entire Asian region. China’s domestic market will also be able to report growth rates averaging 11 percent p.a. over the next 20 years, driven by the pick-up in domestic demand.

Freight rates still pressurized

The downtrend in freight rates has decelerated in past. The slump in rates of the past few years has been halted particularly thanks to the implementation of ancillary cost surcharges for security and fuel. Furthermore, the proportion of special-type and thus higher-priced airfreight is rising.

FedEX the largest airfreight carrier

With 15.145 billion, FedEX is the world's largest airfreight carrier in terms of RTK. With the establishment of a central hub in Guangzhou, FedEX gained a foothold in the fastest-growing export market at an early stage, thus securing its leading position over the long term. It is followed by Air France-KLM with a total of 10.571 billion RTK. With the equity holding in Jade Cargo International, the first Chinese freight airline with foreign participation, Lufthansa Cargo attempts to enhance its positioning on the Asian market.

Rising demand for mega-carriers

Based on estimates by the two leading aircraft manufacturers, Airbus and Boeing, approx. 4,000 freight aircraft will be in use by 2025 respectively. While the segment of small carriers is forecast to decline from the current level of 42 percent to 36 percent by 2026, the proportion of medium-sized and mega-carriers is set to increase to approx. 31 respectively 33 percent. Of the 1,980 aircraft currently in use, 1,350 will have been decommissioned by 2026 due to obsolescence. New requirements will thus come to a total of 3,350 aircraft, of which approx. three-quarters will be covered by the conversion of existing passenger aircraft. All in all, 870 carriers will be delivered straight from the factory. 70 percent of these will be mega-carriers.

Consolidation process among cargo airports

Both inside and outside Germany, the transportation business has in the past few years shifted to a small number of cargo airports. “50 percent of the cargo carried worldwide is focused on a total of 23 air-ports”, said HSH Nordbank analyst Claudia Erdmann. The world’s largest cargo airports are Memphis, Hong Kong and Anchorage. The sharpest growth was reported by the airports in Asia and in the Near East. For instance, the largest cargo airport is being set up in Dubai with an estimated handling capacity of 12 million tons of airfreight. In total, nearly EUR 25 billion are being invested in this region. In Germany, approx. 65 percent of all airfreight transport is handled in Frankfurt am Main.

More spending on security and the environment

As a result of the terrorist attacks, indepth efforts are being made to increase checking capacity for airfreight. A security guideline adopted by the Transport Security Association (TSA) in May 2006 has made the existing provisions even stricter. Virtually all airlines are now making surcharges to enable them to finance the corresponding infrastructure. Just as relevant for airlines and airport operators are provisions with respect to noise standards and prohibition of night flights.

Sustained impetus for growth from deregulation

The aviation sector is hoping for further growth impetus from the deregulation of the airfreight market. In spring the EU settled on an Open Sky Agreement with the United States, through which is to grant comprehensive freedom rights to the airlines. Furthermore, next year the Single European Sky Initiative will be implemented with a view to creating a joint air space within Europe.

The International Airfreight Study can be downloaded at www.hsh-nordbank.com.

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