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Hubert Cox
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2 Focus on Asia Track Kindly Sponsored by:

3 Welcome Address Mr. Lim Ching Kiat Managing Director, Air Hub Development Changi Airport Group

4 Asian Economies Brian Pearce Chief Economist IATA

5 Backdrop to Asia air cargo markets Brian Pearce Chief Economist 13 March 2019

6 The rise of China s economy and fall of Japan 40% Share of world GDP, %, market exchange rates 35% 30% 25% 20% 15% US EU28 China 10% 5% 0% Japan India Source: IATA Economics using data from Oxford Economics

7 The extraordinary rise in China s trade share 35% Share of world trade, % 30% 25% 20% 15% China US Germany 10% 5% 0% Japan India Source: IATA Economics using data from Oxford Economics

8 Rise of Asia-Pacific reflected in air cargo shares 50% Share of international FTKs by region of registration 45% % of total FTKs 40% 35% 30% 25% 20% Asia Pacific airlines European airlines N American airlines 15% Source: IATA Economics using data from IATA Statistics

9 So weakness in Asia matters 25.0% Growth in FTKs by market segment 20.0% % change year-on-year 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% ME - Asia Europe - NA NA - Asia Europe - Asia Within Asia -15.0% Source: IATA Economics using data from IATA Statistics

10 Asia-Pacific airlines FTKs flown down 5% over year 8.5 Asia Pacific airlines FTKs flown FTKs, billion Seasonally adjusted Actual Source: IATA Economics using data from IATA Statistics

11 Export orders point to further decline in near term Export orders and FTK growth 16.0% 56 FTK growth, %change year-on-year 12.0% 8.0% 4.0% 0.0% -4.0% FTK growth Export orders index Export orders PMI, 50= no change -8.0% Source: IATA Economics using data from Thompson Reuters Datastream, IATA Statistics 47

12 Chinese fiscal policy remains expansionary Change in structural deficit, % GDP Fiscal policy injection into economy, % GDP US EU28 China Stimulus Austerity Source: IATA Economics using data from IMF World Economic Outlook Database, October 2018

13 Real borrowing costs in China not excessive 6% Real 10-year bond yields 4% 2% 0% China US -2% Eurozone -4% -6% Source: IATA Economics using data from Thompson Reuters Datastream

14 Regional outlook for economic growth is good 8 7 Forecast GDP growth % change year-on-year India Vietnam China Indonesia Thailand S Korea Japan Source: IATA Economics using data from Oxford Economics

15 Trade outlook forecast to improve 12 Forecast growth in export volumes % change year-on-year Vietnam India Indonesia China Thailand S Korea Japan Source: IATA Economics using data from Oxford Economics

16 Thank you Brian Pearce

17 Trade Protectionism and Impact on Air Freight in Asia Moderator: Marco Bloemen, Managing Director, Seabury Consulting Panelists: Mr. Andrew Herdman, Director General, AAPA Mr. Yacoob Piperdi, Executive Vice President, Gateway Services, SATS Mr. Chin Yau Seng, Senior Vice President Cargo, Singapore Airlines Mr. Do Xuan Quang, Vice President Cargo, Vietjet Air

19 Networking Break 15:30 to 16:15 in Roselle Simpor Ballroom Kindly Sponsored by:

20 Changi Airport: Vision for the Future Air Cargo Hub Ms. Jaisey Yip Associate General Manager, Cargo & Logistics Development Changi Airport Group

21 The Belt & Road Initiative Moderator: Dr. Carl-Stefan Neumann, Senior Advisor and Director Emeritus at McKinsey & Company Panelists: Mr. Steven Lee, Chairman, Singapore Aircargo Agents Association (SAAA) Mr. Law Chung Ming, Group Director, Transport & Logistics, Enterprise Singapore Ms. Ho Ghim Siew, Head of Group Commercial Strategy & Cargo Solutions, PSA Prof. Dr. Zhu Qiuyuan, Shanghai Customs College Mr. Vladimir Zubkov, Secretary General, TIACA

22 Belt and Road Initiative IATA WCS March 2019

Belt and Road Initiative : one of the world s largest platforms for regional and intraregional collaboration BRI s Economic Scale (2017) Population covered GDP of countries covered Europe Goods and

4 Bn USD China West Asia South Asia Africa Total investment so far 63% 21 Tr 27% 7 Tr 29% USD Number of countries expressing interest Middle East Arabia Percent of world total >65 USD > 80 Bn The

23 Belt and Road Initiative : one of the world s largest platforms for regional and intraregional collaboration BRI s Economic Scale (2017) Population covered GDP of countries covered Europe Goods and services exported Silk Road Economic Belt 4.4 Bn USD China West Asia South Asia Africa Total investment so far 63% 21 Tr 27% 7 Tr 29% USD Number of countries expressing interest Middle East Arabia Percent of world total >65 USD > 80 Bn The multiplier effect of infrastructure investment as estimated by China Development Research Center Southeast Asia 21st Century Maritime Silk Road $ $1Bn Infrastructure Investment SOURCE: Literature search, EY Report Riding the Silk Road: China sees outbound investment boom, Fidelity world investments report One Belt, One Road: Building Links, Strengthening Influence, World bank $ $ 30-80k New jobs $2.5Bn New GDP McKinsey & Company 2 66

24 Development of six corridors with multiple individual projects under way Economic Corridors Cities over 10 million (2015) China-MongoliaRussia Moscow Yekaterirburg Odessa Ulan Ude Yuzhny New Eurasia Land Bridge Tbilisi Athens Anaklia Ankara Other important cities Novosibrsk Katan Kiev Turkmenbashi Vladivostok Vostochny Shenyang Zarubino Beijing Jining Tokyo + Khorgos Tashkent Urumqi Tianjin Kashgar China-Central AsiaTehran West Asia Mashhad Cairo SETCZ Harbin Ulaanbaatar Almaty Aktau Baku Piraeus Astana Havelian + Isfahan ChinaPakistan Dubai Delhi Ningbo Chengdu Bangladesh-ChinaIndia-Myanmar Karachi Nanning Vientiane Yangon Da Nang Bangkok Addis Abeba Djibouti Bangalore Colombo Port city Hambantota Sihanoukville Ho Chin Minh City Kuantan Singapore Lamu Dar ES Salaam Road improvement Existing road Proposed sea route Mombasa Bagamoyo Existing rail Penang Kuala Lumpur Kuala Linggi Malacca Nairobi Manila Phnom Penh Chennai China-Indochina Peninsula Luba Rail improvement Shenzhen Hong Kong Hanoi Kyaukpyu Mumbai Guangzhou Mandalay Kolkata Port >10 million TEU/year (2015) Chongqing Kunming Dhaka Gwadar Sea port (planned / realized) Keihanshin Shanghai Islamabad-Rawalpindi Lahore Multan Nagoya Seoul Qingdao + Inland hub (planned / realized) Jakarta Existing Shipping McKinsey & Company 67

25 Intra-regional corridors of particular importance as priority of speed to market and proximity to customers makes trade more regional Reasons driving trade and growth More than half of physical trade in EU-28 and Asia-Pacific is intra-regional Intra-regional goods trade as % of cross-border total trade by region Labor-cost arbitrage Access to skilled labor Proximity to customers Speed matters Access to natural resources NAFTA LAC EU MENA Sub- Saharan Africa 40 Asia-Pacific Quality of infrastructure SOURCE: McKinsey Global Institute, Globalization in transition: The future of trade and value chains, January 2019 McKinsey & Company 68

World Bank expects an additional increase in trade of up to USD 66 bn between China and ASEAN, based on BRI infrastructure and collaboration BRI reduces trade time and unlocks trade volumes between

26 World Bank expects an additional increase in trade of up to USD 66 bn between China and ASEAN, based on BRI infrastructure and collaboration BRI reduces trade time and unlocks trade volumes between BRI economies Trade time reduction by scenario Proportional decrease in shipment time, pre-bri vs post-bri, percent Trade volume increase between China and ASEAN Infrastructure improvements only % 2017 Trade volume between China and ASEAN 515 billion USD Trade volume increase between BRI countries by scenario Percent Trade volume increase between China and ASEAN billion USD Infrastructure improvements and process improvements (less border delays) 7.4% % Infrastructure improvements Correlation between transit time reduction and volume $ $ Infrastructure improvements and process improvements (less border delays) day Transit time reduction 5.2% Trade increase Infrastructure improvements, process improvements ( less border delays) and trade agreements SOURCE: World Bank Policy Research Working Paper Trade Effects of the New Silk Road McKinsey & Company 69

27 For air cargo an ambivalent picture Trade volume grows Open Skies Agreements E-Commerce globalizing More competitive modal alternatives Better integration of intermodal alternatives World trade forecasted to grow by ~4% p.a. until 2022 Trade still expected to grow by >3% p.a. even in case of a US-China trade war Open Skies Agreements reduce air transport costs by 9% and increase the share of imports arriving by air by 7% Strong momentum for further alignment across Africa region Cross-border e-commerce growing at >20% p.a. Alibaba promise: 72h click-to-door delivery time for crossborder purchases (from an average 10 days today) Rail EU China time reduced to 15 days from 25 First truck completed Europe - China delivery in 12 days at the beginning of 2019 Increased intermodal connectivity through integration of truck/rail and sea ports? Highly dependent on how air cargo supply chains speed up McKinsey & Company 70

28 Questions on BRI Illustrative example: Southern Transport Corridor Chongqing-Singapore Chongqing airport terminal 3 and fourth runway start construction during 2019 Chongqing Will it fully unfold? Guiyang Kunming Nanning Hanoi Opportunity and risks for air cargo? Vientiane Beibu Gulf / Qinzhou port Bangkok What does the air cargo ecosystem need to do? Kuala Lumpur Singapore Chongqing- Beibu Gulf cold chain rail launched at the end of 2018 Rail-sea intermodal freight via Beibu Gulf instead of Shenzhen, transit time will decrease from 17 days to 10 days, and cost saving up to 30% per TEU kilometers cross-border road freight McKinsey & Company 71

30 Closing Remarks Mr. Lim Ching Kiat Managing Director, Air Hub Development Changi Airport Group

31 Focus on Asia Track Kindly Sponsored by:

TURKISH CARGO NETWORK: YOUR KEY HUB TO GLOBAL SUPPLY CHAIN November 2017

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