AIAS Air Cargo Related Economic Development Opportunity Assessment September 9, 2014 CONTENTS EXISTING CONDITIONS .................................................................................................. 3 Introduction and Overview ...................................................................................... 3 Cargo Snapshot ......................................................................................................... 6 Supply Chain Markets................................................................................................ 8 On Reservation Business Base ................................................................................ 14 TRANSPORT ASSET REVIEW ........................................................................................... 15 PROPERTY ASSET REVIEW .............................................................................................. 22 Regional Snapshot ................................................................................................... 23 MAP AIR CARGO SUPPLY CHAIN TRENDS & DEFINE INDUSTRY VERTICAL TARGETS ................................................................................................................ 30 Aerospace ................................................................................................................ 30 Apparel (Fast Fashion, Primarily) ............................................................................ 45 Automotive – New Vehicle & Aftermarket Parts ................................................. 63 Computer and Electronic Product Manufacturing ............................................ 81 Pharma ...................................................................................................................... 91 Toys ........................................................................................................................... 101 AIR CARGO DRIVEN COMPETITIVENESS BENCHMARKING REPORT ........................ 116 Methodology .......................................................................................................... 116 Findings and Conclusions ..................................................................................... 117 Pharmaceuticals .................................................................................................... 119 Aerospace .............................................................................................................. 121 Automotive ............................................................................................................. 123 Electronics ............................................................................................................... 125 SUMMARY AND RECOMMENDATIONS ...................................................................... 128 Delivery Recommendations ................................................................................. 129 AIAS Air Cargo EDO Assessment Page 1 APPENDIX A ................................................................................................................ 136 Trade Flow Data – North America – Asia (2013) ................................................ 136 APPENDIX B ................................................................................................................ 142 Sector Competitiveness Assessments ................................................................. 142 AIAS Air Cargo EDO Assessment Page 2 EXISTING CONDITIONS Introduction and Overview The State of Alaska has a robust international trade environment. Serviced mainly by both sea and air modes of transportation, the 2012 dollar value of imports destined for Alaska was $2.1 billion and native Alaskan exports were $4.5 billion. The largest export category is fish and other marine products followed by natural resource products. In Alaska for marine transportation, the Aleutian Islands are a major transit for the Great Circle Route linking commerce from the US west coast to southern Asia. Shipping is also expanding through the Bering Strait, a 53-mile wide chokepoint that links both the Northern (Russia) and Northwest (Canada) passages to northern Asian, Russian, and European commerce. For air transportation the Ted Stevens Anchorage International Airport (ANC) is ranked second in the US for landed weight of cargo aircraft, and sixth in the world for cargo traffic (Airports Council International). ANC holds a unique position among international air gateways in the United States. In 1996, the US Department of Transportation began to permit air carriers from foreign countries (except those from the United Kingdom and Japan) to conduct expanded cargo activities at ANC. These activities included cargo transfer from a foreign carrier’s aircraft to any of its other aircraft, transfer from a foreign carrier to any US air carrier, and transfer from one foreign carrier to any other foreign carrier without being considered to have broken its international journey. In 2004 domestic and foreign carriers were afforded more flexibility and the outbound-US operations through ANC were afforded increased liberalization for the first time. ANC and Fairbanks International Airport (FAI) are the only two airports in the United States to have been granted these liberal air cargo transfer capabilities. Anchorage is within a group of airports that have an important role in global air cargo commerce. Most are origin or destination hubs (or both), while Anchorage’s historic role has been strategic and operational. All operate technologically advanced facilities and are capable of high throughput operations. The primary air freight hubs include: ● Frankfurt Airport which is Europe’s busiest cargo hub ● FedEx Express Super Hub, Memphis International Airport, US ● Dubai Cargo Gateway, Dubai International Airport, UAE ● Hong Kong International Airport, Hong Kong AIAS Air Cargo EDO Assessment Page 3 ● Louisville International Airport ● Paris-Charles de Gaulle Airport, France ● Changi Airfreight Centre, Singapore Changi Airport, Singapore ● Cargo terminal complex, Incheon International Airport, South Korea ● Shanghai Pudong International Airport Cargo Terminal, Shanghai, China ● Ted Stevens Anchorage International Airport, Anchorage, US ANC was not immune to the precipitous drop in air cargo traffic during 2008 and 2009, when global air cargo traffic fell 3.2% and 9.6%, respectively----the first time that air cargo traffic contracted in two consecutive years. ANC Total Annual Cargo Volume (MT) Year Volume %Change 2006 2,808,317 2.6 2007 2,825,511 0.6 2008 2,339,831 (15.7) 2009 1,994,629 (15) 2010 2,646,695 36.6 2011 2,543,155 (3.9) 2012 2,463,646 (3.1) 2013 2,421,145 (1.7) Source: Airports Council International The global economic downturn of 2008 and 2009, the worst economic contraction since the Great Depression, had the effect of dragging down all modes of transport. Air cargo traffic fell 12.8% between mid-2008 and year-end 2009, the worst decline since the beginning of the jet transport age. By mid-2009, however, worldwide industrial production and consumer demand began to increase, nudging air cargo traffic toward recovery. Air cargo surged in 2010 as world industry moved to restock depleted inventories. ANC’s numbers generally followed the global trends. AIAS Air Cargo EDO Assessment Page 4 Total Annual Cargo Volume 2013 (in metric tons) Global Rank Region Airport Total Cargo % Change 1 HONG KONG, HK HKG 4 161 718 2.3 2 MEMPHIS TN, US MEM 4 137 801 3.0 3 SHANGHAI, CN PVG 2 928 527 (0.3) 4 INCHEON, KR INC 2 464 384 0.3 5 DUBAI, AE DXB 2 435 567 6.8 6 ANCHORAGE AK, US ANC 2 421 145 (1.7) 7 LOUISVILLE KY, US SDF 2 216 099 2.2 8 FRANKFURT, DE FRA 2 094 453 1.4 9 PARIS, FR CDG 2 069 200 (3.8) 10 TOKYO, JP NRT 2 019 844 0.7 Source: Airports Council International Growth continued during the first quarter of 2011, expanding an estimated 4.5% compared to first quarter 2010, after peaking at a level not seen since 2007. But starting in June 2010, jet fuel prices were on the rise, climbing 42% by December 2011. This contributed significantly to an air cargo traffic slowdown that was aggravated by the civil unrest of the Arab Spring uprisings, the Japan (“Tohoku”) earthquake and flooding in Thailand. The latter two shocks disrupted the manufacture of automotive components and information technology (IT) goods, both of which are key commodity groups for air cargo and the ANC route. ANC cargo throughput declined 14% between 2007 and 2013. Rising fuel prices have also been a factor in air cargo traffic slowdowns since late 2004, diverting air cargo to road transport and maritime modes, which are less sensitive to fuel costs. Air cargo demand has been affected by excess capacity in seaborne trade since the beginning of the economic downturn which has lowered shipping rates. The price of jet fuel has tripled over the past 8 years, and prices are likely to remain volatile as the threat of supply disruptions persists. In January of 2014, oil and jet fuel prices were forecasted, in some scenarios, to remain around mid-2012 levels and then decline over the next 3 to 5 years. However recent tensions, including the Ukraine and further Middle East unrest have sparked an upward trend and now IATA is projecting higher oil prices that are expected to average $108 a barrel which is $3.50 per barrel above previous projections. AIAS Air Cargo EDO Assessment Page 5 An underlying bright spot for ANC is that air cargo is a fundamental requirement for many growth industries and consumer spending