ften you only realize how much you depend on something when it goes missing. That could certainly be said for the record-setting economic boom in the United States, which rapidly lost steam in the second half of 2000 and is now being missed throughout the world. It's unclear whether the American economy will actually fall into a recession, or merely a period of much-slower growth, but it's very clear that the rest of the world will feel the impact.

In some cases, the impact is direct: Collapsed information technology spending in the United States has obvious implications for computer manufacturers in Asia. In others, the impact is indirect: Falling consumer confidence in the United States depresses demand for imports, and falling business confidence deters expansion including overseas direct investment. Around the world, people and businesses increasingly care about economic events on other continents. Alan Greenspan is becoming a household name, from Bangor, Maine, to Bangalore, India, for good reason.

Few industries feel economic cycles as keenly as the air freight business. A sustained economic slowdown in the United States could have serious consequences, especially for carriers with high fixed cost structures and soaring fuel bills. In this environment, it's tempting to focus on the near-term outlook for demand, yields and fuel prices.

But successful competitors will not lose sight of the real issue: not how bad the current U.S. slowdown will be, but why economic events on one continent increasingly have an impact on the rest of the world. The short answer is that the world economy is evolving in ways that will permanently change the air freight business and the broader logistics industry. In this year's World Air Freight Forecast, we discuss how.

Convergence

The evolution of the world economy can be characterized in a single word: convergence.

Different parts of the world are becoming more alike in terms of economic thinking, organization and performance. Economic paths in more countries are beginning to converge toward a single world model of economic growth and development centered on the free exchange of information, goods, services and capital. Countries are converging on regional norms, and regions are converging on global norms.

Convergence is a multifaceted phenomenon. Each facet depends on and influences the others. We will focus on how three key facets - economic, financial and information convergence - affect the air freight industry.

Economic convergence means that economic thinking, income distribution and lifestyles are becoming more alike around the world. Popular expectations are converging, fueled by the freer exchange of information over television and the Internet. Political systems are converging with the general rise of representative democracy (in many different forms) and the corresponding decline in authoritarian regimes.

Economic policies are converging, as a growing number of governments perceive that the market model delivers the fastest economic growth. Accordingly, these governments typically seek increased and freer trade, reduced state ownership (privatization), and reduced government spending as a share of gross domestic product. As governments relax controls, there is a growing exchange of capital, goods and people between countries with progressively less regard for distance. In this increasingly open environment, every company feels the pressure from the most efficient producers to produce a better product at lower cost. The result is that increasingly specialized firms converge on global best practices in order to remain competitive.

Financial convergence means that more and more countries rely on markets to allocate capital within and across national borders. This trend takes different forms in different countries. Generally, state-owned firms are being weaned from government subsidies. They are often privatized, forcing them to compete for capital in private markets. Fewer industries are designated as "strategic national interests" off limits to partial or total foreign ownership - especially when foreigners invest in plant and equipment.

Capital markets are becoming larger and more dynamic as restrictions on capital flows are lifted. The free flow, and flight, of capital drives convergence of risk-adjusted returns: investors naturally chase the best deals. In turn, this drives a growing focus on capital efficiency (return on capital employed).

Information convergence means that around the world, people have increasingly similar abilities to access, analyze and easily communicate information.

Dramatic reductions in the cost of long-distance electronic transmission, and the rise of common languages (English and Microsoft programs), facilitate communication among a growing class of symbolic analysts throughout the world. These trends are driving profound changes. Business decisions are becoming more analytically driven in response to growing competition across borders and investor demands for capital efficiency. Location is becoming less important than education and the cost/quality of telecommunications as determinants of a country's economic growth.

The forces of convergence directly affect the air cargo business and the broader logistics industry.

Economic convergence, also known as globalization, naturally stimulates trade. Under constant and growing pressure from foreign competitors, manufacturing firms often open overseas plants in search of the best combination of price and quality. The resulting flows of capital equipment, components and finished products boost trade and air freight demand.

Financial convergence, specifically the growing focus on capital efficiency, is forcing shippers and carriers to become more productive. Shippers are focusing on logistics as a potentially powerful, and still relatively untapped, way to boost return on assets. For their part, carriers are losing government protection and subsidies, and in turn will be forced to justify fleet expansion based on forecast financial returns. The result is greater sophistication among end-customers and less irrational capacity.

Information convergence is increasing transparency in the freight forwarding business. The Internet will eventually eliminate all secrets - in other words, the increasingly free flow of information about prices and capacity will undermine forwarders whose only advantage is that they merely know more about current market conditions than their customers.

To preserve their profit margins, forwarders will have to figure out new ways to extract revenue from shippers.

Air Freight Impact

Convergence is forcing structural change on the air freight and logistics industries. Demand convergence is the driver. Shippers increasingly buy overall logistics solutions that include multi-modal transportation packages. Instead of buying pure transportation, shippers are outsourcing related functions as well as elements of their core business to logistics providers.

Historically, many shippers moved their product by ocean to minimize explicit transport cost, and reacted to the inevitable "emergencies" (stock-outs) by purchasing air freight as needed. Today, shippers increasingly plan to use air freight as part of a package to maximize competitive advantage while controlling total distribution costs. Thus, shippers look for vendors able to provide a mix of modes as appropriate.

Also, as they seek deeper and more complex logistics relationships, shippers are concentrating their business with fewer and fewer "core" transportation/logistics vendors.

In response, there is supply convergence: logistics products and competitors are moving toward uniform, steadily rising global standards.

Product standards are defined by price, quality (speed and on-time delivery, for instance) and information (shipment tracking, for instance). Large freight shipments are relatively rate-sensitive compared to documents, so price is a paramount consideration. Naturally, different shippers make different price/quality trade-offs - the point is that the products offered at a particular price point are increasingly similar. In all cases, accurate and timely information has become critical. The multinational freight forwarders have invested billions of dollars in information technology in an effort to match the information capabilities of the integrated carriers.

Competitor standards are defined by product range and geographic scope of operations. Most competitors rely on acquisitions, rather than internally-generated growth, to move toward the standard and remain competitive. Perhaps the leading example is Deutsche Post, which is in the process of creating the next global integrated carrier, combining Europe's largest post office, two multinational freight forwarders (so far), a leading integrated carrier and perhaps the world's largest cargo airline.

Less publicized, but equally significant, is the continuing consolidation among both freight forwarders and airlines. Forwarders tend to acquire or merge with each other, while airlines typically enter into alliances in which one carrier takes responsibility for another's lift. Whatever the means, the motivations are usually the same: revenue benefits from a larger product portfolio and broader geographic scope; cost benefits from economies of scale.

Size is perceived to have its own merits: namely, a way to counter the negotiation power of newly-enlarged customers.

It's interesting to note that transportation technology is also converging, as evidenced by the various projects attempting to fill the gap between "fast, expensive, air" and "slow, cheap, ocean" options. Examples include FastShip Atlantic as well as various airship designs.

Industry Structure

To understand what MergeGlobal's numbers represent, it is necessary first to understand air freight demand segmentation and industry structure.

Historically, freight transport demand was segmented by mode: air, ocean, truck and rail. However, modal boundaries are blurring. For example, a large percentage of regional "air express" traffic never touches an airplane because trucks can offer similar door-to-door transit times at a fraction of the cost.

Modal distinctions are still fairly clear in intercontinental markets, where long distances ensure that aircraft have a significant transit time advantage. However, the rise of intermediate products (such as sea/air and FastShip) threatens to undermine the mode-based definition.

In the future, we believe that shippers will select carriers and modes based primarily on shipment size and velocity. Accordingly, these factors should be the basis for demand segmentation (see chart, page 30).

Shipment size is a function of the number of pieces in a shipment, and the average weight per piece. Broadly, shipments consist of documents, small packages and heavy/outsize pieces. For reasons we explore below, the vertically-integrated express carriers have a natural advantage in moving documents and small packages that are "conveyable" - that is, packages that can be fed through the conveyor belts at the sorting hub. Non-integrated freight forwarders have the advantage in moving larger consignments, from unitized small packages (multiple small packages loaded together onto a pallet) up to heavy or outsize pieces that could not pass through the integrated carriers' sorting systems.

The dividing line between integrator and forwarder traffic is hazy, however, and hotly contested.

Door-to-door velocity is a function of distance and speed. Broadly, there are four speed options in any given market, ranging from "fastest" for time-critical traffic to "slowest" for the most rate-sensitive traffic. As noted earlier, the velocity options can be split into air and ocean categories in intercontinental markets but not in regional markets, where trucks and trains are competitive with aircraft.

The air freight industry operates on two distinct levels: retail and wholesale. On the retail level, carriers and forwarders sell door-to-door transportation to individual shippers. On the wholesale level, firms sell specific parts of the door-to-door journey to retail competitors. Airlines are by far the largest wholesale players, selling airport-to-airport transportation to forwarders.

In addition, agents sell customs clearance and final delivery services at the wholesale level.

Within the wholesale and retail structure, there are two basic business models: integrated and non-integrated.

Integrated carriers own or exclusively control all of the assets, people and information systems necessary to move a shipment from retail point-of-sale to final delivery. Obviously, vertical integration is expensive, but integrated carriers generally offer the fastest, most reliable service in the market. The drawback in the business model is that the integrators are inflexible: their flight schedules are necessarily rigid in order to keep their hub-and-spoke networks on time, and their services are highly standardized in terms of transit time, maximum size and maximum weight. Such standardization allows the integrators to drive down unit costs as they build traffic.

In contrast, non-integrated competitors operate at either the retail or wholesale levels, but not both.

The primary battleground is the retail level, where forwarders compete with integrators. Generally, forwarders can be more flexible than integrators because they use a number of carriers and different modes of transport, where necessary, to tailor door-to-door offerings for shippers. Forwarders also bundle non-transport services, from warehouse management to minor product repairs, in order to create logistics solutions for their customers.

Forwarders have a natural advantage in heavyweight freight, where shippers require customized transport options that meet production and distribution schedules at acceptable total cost.

Forwarders still dominate international air freight markets, accounting for more than 80 percent of tonnage. Yet the integrators are making dramatic inroads as they expand their international networks and move up the weight spectrum to capture heavier consignments. Ironically, the forwarders support the integrators' international expansion by buying excess capacity on their overseas flights.

There is clear movement toward applying the integrated model to the heavyweight business. As previously mentioned, Deutsche Post is agglomerating large forwarders - and their heavyweight business - with backbone capacity from Lufthansa. The motivation seems to be a desire to overcome the well-documented problems of the forwarder/airline "partnership" by aligning long-term economic interests through common ownership.

The industry's split-level structure creates the danger of double-counting. For example, airlines receive the majority of their cargo traffic from forwarders, so their business is mostly a subset of the forwarders' business.

To avoid this problem, we count traffic only at the industry's retail level.

2001 Forecast Overview

By any measure, the world air freight industry has enjoyed dramatic growth, reflecting the strong expansion in world trade since the early 1980s. We estimate that world air freight tonnage increased an average of 6 percent annually, from 22.5 million metric tonnes in 1995 to 30.12 million tonnes in 2000.

Unfortunately, growth has been volatile because air freight tends to exaggerate economic events. In 1998, air freight growth plummeted as the Asian financial crisis dramatically reduced air imports into the region. Conversely, there was a dramatic recovery in 1999 due to pent-up demand.

Now slowing U.S. economic growth, coupled with a seemingly perpetual Japanese recession and uncertain prospects in Europe, is depressing traffic growth once again. MergeGlobal expects tonnage to recover in 2002 and peak in 2003. Overall, MergeGlobal expects world air freight volume to average 5.2 percent annual growth through 2005, when it will exceed 38 million tonnes.

In 2000, approximately 60 percent of world tonnage moved to, from or within the United States, which is both the world's single largest economy and also its most developed air freight market.

However, mature markets by definition grow more slowly than emerging ones, which is why we expect the fastest growth to occur outside the United States. In particular, the Asia/Pacific market has and will continue to rebound strongly from the effects of the financial crises of 1997-98. Asia/Pacific, especially the intra-Asia market, will continue to figure prominently in the markets showing the greatest absolute traffic growth during the next five years.

Definitions

For the purpose of a world air freight industry forecast, it is useful to group countries based on shared air freight characteristics, even if the groupings occasionally depart from conventional regional definitions. For example, passenger belly capacity and the availability of trucking connections (as well as pure-truck substitutes for air transport) are the primary considerations underlying our groupings.

Specifically, we organized the world into six air trade regions: North America (the United States and Canada); Latin America (Central and South America and the Caribbean); Europe (Western, Central and Eastern Europe plus the Commonwealth of Independent States); Africa; the Middle East and Asia/Pacific (including North Asia, Southeast Asia, South Pacific and the Indian subcontinent).

We analyzed and forecast air freight flows within and between these six regions. The regional and world totals represent MergeGlobal's estimate of all domestic and international air freight, including "air freight" that moves entirely by truck within North America and Europe.

The forecast is based on a six-year historical period (1995 through 2000) and covers a five-year forecast period (2001 through 2005) to enable the calculation of five-year historical and forecast growth rates.

All traffic figures are in metric tonnes. Except for year-over-year percentage-change figures, all growth calculations are expressed in terms of compound average growth rate.

Why Pay More?

Although air freight is fast and reliable, it is also expensive. Long-haul air freight rates per kilogram are typically seven to 10 times higher than comparable ocean rates. To forecast future air freight demand, it is critical to understand why shippers (the end-users) are willing to pay such large premiums for air transport.

Different types of shippers use air freight for different reasons. However, all air shippers have one thing in common: they do not focus on minimizing transportation costs, but rather concentrate on minimizing total distribution costs and maximizing economic value-added.

The speed and reliability of air freight can have a major impact on both TDC and EVA.

Total distribution costs represent all of the costs incurred in the process of making, storing and distributing a product to the end-customer. Transportation charges are the largest, but not the only, component of TDC. Product packaging, warehousing and inventory shrinkage are also significant expenses.

Economic value-added reflects the benefits of a well-functioning distribution system - and, conversely, the costs of not having the right goods in the right place at the right time. For example, stockouts can result in lost sales and production line shutdowns with economic consequences that far outweigh total distribution costs.

For both TDC and EVA reasons, air freight is most attractive to producers of high-value and perishable goods. High-value goods include obvious examples such as semiconductors and precision instruments.

However, perishable goods - products that rapidly lose value after a certain time - take several forms. Cut flowers and fresh seafood have limited shelf lives. Other goods, such as fashion apparel, are economically perishable. Fickle consumer tastes can transform designer apparel from what's-hot to what's-not in the time it takes a container ship to make the voyage from Hong Kong to New York.

Some products suffer from both physical and economic perishability: consider the reduced demand for red roses after Valentine's Day.

Overall, MergeGlobal expects that as more shippers recognize the economic benefits of delivery time compression and time-definite arrival, air freight will capture a disproportionate share of future trade growth. This secular trend is already evident: Since 1990, international air freight traffic has grown approximately 2.5 percentage points faster than international ocean volumes.

Since air freight still accounts for less than 1 percent of world trade tonnage, it seems that the differential growth rate can be maintained for the foreseeable future.

Demand Drivers

We believe that the primary drivers of worldwide air freight traffic growth are:

Economic growth. Air freight is a subset of world trade, which is directly related to world economic growth. Trade has grown explosively over the past three decades. By our estimates, there has been approximately a 2 percent increase in the value of world trade for each 1 percent increase in the size of the world economy.

Air trade, in terms of both value and tonnage, has grown even faster as aircraft take market share from ships. Air freight represents less than 1 percent of total intercontinental trade tonnage, so even minuscule movements in market share can translate into significant air freight growth.

Globalization. Each day, the world economy becomes more integrated and interdependent. The financial crises of the late 1990s, and the attendant fears of "global contagion," demonstrate this fact. More positive evidence can be found in the economic opening of China, which may again become the world's largest economy. Progressive economic integration, and steady reduction in protectionism, should boost overall trade flows, and with it air freight traffic.

Lean inventory strategies. More companies, large and small, are focusing on order-cycle time reduction and the attendant lean-inventory strategies - including just-in-time, make-to-order, and so on - as an important competitive advantage. Many firms increasingly plan to use air freight to shorten delivery times to the end-customer. Of course, these firms must also increase emergency use of air freight because they have less safety stock to avoid production shutdowns or retail stockouts.

Declining rates. Adjusted for inflation, air freight rates have declined for 30 years. Clearly, air freight demand is stimulated by cheaper rates, but the price elasticity cannot be calculated from the available data.

Constraints

The most significant constraints on air freight growth include:

Economic recession. Any decline in world economic activity, whether cyclical or shock-induced, obviously would harm air freight growth. The present concern is that sagging equity markets will have a powerful, negative impact on both business and consumer confidence, potentially turning the current U.S. slowdown into an outright recession.

Over a five-year horizon, our view continues to be that the world economy will maintain 3 percent real gross domestic product growth.

Trade barriers. Just as economic integration stimulates trade, protectionism hurts it. Trade barriers take many forms and will always exist to some extent. The question is whether the collective impact of trade barriers will grow over time. For example, if the large regional trade blocs, such as the North American Free Trade Agreement, were to deter rather than promote inter-bloc trade, intercontinental air freight flows would suffer.

Regulation. Aircraft noise, emission and safety regulations may have a significant impact on air freight capacity. Noise regulations have received the most publicity. Stage 3/Chapter 3 noise regulations in the United States, Europe and other major countries are forcing operations into expensive modification or fleet replacement programs - and the European Union is already moving to impose higher noise and emission standards.

Although less-publicized, both U.S. and European airworthiness authorities are revisiting their previous approval of several freighter aircraft conversion programs because of engineering concerns. The most recent case involves the grounding of certain modified Boeing 737 freighters due to cracking around cargo door frames. Separately, there is the chance that hazardous materials will be banned from the bellies of passenger jets. Obviously, regulatory changes could have a profound effect on industry economics.

Modal competition. Aircraft usually cannot be beat in terms of speed or reliability, but they are vulnerable on price. Trucks are extremely powerful competitors in intra-regional markets with good highway networks, such as North America and Western Europe. Technological change could create "fast ships," airships or other substitutes for jet aircraft in intercontinental markets. The timing or impact of such developments are unknown.

In sum, we assume that the world economy averages 3.2 percent real GDP growth during the 2001-2005 forecast period. We further assume that the other drivers of, and constraints on, air freight demand maintain the balance of the historical period.

Regional Summaries

Intra-North America

The intra-North American market includes all air freight shipments that move within and between the United States and Canada, from envelopes to industrial consignments, moving under an airway bill, although not necessarily on aircraft.

North America's population consists of 306 million consumers, which is 5 percent of the world population. North American GDP was $9.5 trillion in 2000, growing 4.4 percent per year since 1995. Consumer spending drives demand for freight transportation services. The North American market has the world's highest per capita income ($31,000) and thus the highest potential for consumer spending.

The manufacturing share of the economy is 36 percent, comprising 24 percent of world manufacturing production value and 2 percent of world manufacturing employment.

The intra-North America market continues to be the largest market for expedited transport, although this is not the "true" air freight market as the trucking component is completely interwoven in the air networks of the largest carriers.

The domestic leg of international trade accounts for 15 percent of total traffic. The largest growth industrial sectors were basic materials (9 percent of the total market) hand-in-hand with telecommunications and high-tech equipment (7 percent), and consumer appliances (7 percent).

Between 1995-2000, the average daily traffic increased 10 percent per year in North America, an increase in daily traffic of 726 tonnes over this period. Over the forecast period 2001-2005, MergeGlobal predicts this traffic will grow 6.1 percent per year, generating an increase of 657 tonnes of daily traffic.

Intra-Europe

The market includes air freight traffic within Western and Eastern Europe and the CIS, including time-definite traffic moving under an airway bill, both by air and by truck. Trucking plays a major role in freight transport in Western Europe, having a significant impact on air freight. MergeGlobal estimates 80 percent of expedited freight moves via truck within Western Europe.

Europe boasts a population of 842 million consumers (14 percent of the world population). The European regional market is estimated to be 3,112 tonnes per day, 4.6 percent of world air freight.

European GDP was $11.1 trillion in 2000 and grew an average of 2.5 percent per year between 1995 and 2000. The top industry segments are processed food, intermediate manufactured goods, raw materials, basic materials and automotive, representing 48 percent of European manufacturing.

The regulatory environment in the European market is restrictive: airports have strict curfews, weekend truck movements are limited and truck sizes are much smaller than in the United States (12 meters compared to 16 meters). The red tape in Europe often forces last minute, just-in-time transport of products. This leads the shipper to choose air freight as the mode of transport.

Countries on Europe's periphery use air freight since ground transport is sub-optimal and, with regards to the United Kingdom and Scandinavia, it is sometimes not even an option. The growth of information technology manufacturing in Ireland, as well as the growth in mobile phone production in Finland, also has prompted an increase in expedited air freight.

Between 1995-2000, daily traffic increased 3.7 percent per year in Europe, an increased average volume of 511 tonnes. Over the forecast period, MergeGlobal calculates the daily traffic will grow 4.6 percent annually, generating incremental daily traffic of 775 tonnes.

Intra-Asia

The market includes air freight traffic within Asia (including North Asia, Southeast Asia, the South Pacific and the Indian subcontinent). This does not include domestic traffic within any Asian country.

Asia's population makes up 56 percent of the world population. The 3.3 billion consumers make up only 27 percent of the world's personal consumption, however. The intra-Asia market is 21.5 percent of the average daily world air freight, amounting to 14,598 tonnes.

Asian GDP was $9.5 trillion in 2000 and has grown an average of 2.8 percent annually since 1995. The largest manufacturing sectors include: intermediate manufactured goods, raw commodities, automotive, processed food, and computers and peripherals. These sectors represent 52 percent of Asian manufacturing production.

The intra-Asian trade is primarily a north-south market, with Japan the anchor. Southeast Asia contains many production centers for corporations based in Japan, as well as China and other North Asian countries. Since this region is equatorial, it is a large producer of perishables. There is also demand pull from the Northern Hemisphere Asian countries for contra-seasonal produce from Australasia.

The region's island nations require air transport for commodities that are not only physically perishable but economically perishable. The supply chain movements of high-tech products within Asia create a multi-stage production process, accounting for a large portion of just-in-time transport that does not allow for modal choices.

Between 1995-2000, the average daily traffic increased 7.9 percent annually in intra-Asian trade, an increase of 4,609 tonnes over this period. During the forecast period, MergeGlobal calculates that the average daily traffic will grow 6.8 percent annually, generating an increase of 5,645 tonnes of daily traffic.

North America-Asia

The market consists of air freight traffic between United States and Canada and Asia (including North and Southeast Asia, South Pacific and Indian subcontinent).

The eastbound market from Asia to North America represents 58 percent of the region's bi-directional market and 10 percent of the world market, generating an average of 6,569 tonnes per day. The North America to Asia market accounts for 4,804 tonnes per day, 7 percent of the world market.

The majority of eastbound trade is considered "round trip" trade; MergeGlobal estimates that as much as 40 percent of this trade is intra-company. This stems from the location of manufacturing facilities in Asia, particularly Southeast Asia, for multinational corporations based in the United States.

Consumer spending fuels several of the largest eastbound shipper segments from Asia. In fact, personal consumption represented 68 percent of all North American consumption in 2000. Apparel and footwear is the single largest air freight segment, making up 23 percent of the Asia to North America market. Computer and peripherals is the next largest segment, at 21 percent of the total eastbound demand. Electrical industry apparatus, telecommunications equipment and consumer non-durables (such as jewelry and sporting goods); all five commodities constitute 64 percent of the total eastbound market.

The westbound market consists primarily of components and materials necessary for production. Westbound trade is also dominated by computer and peripherals, followed by intermediate manufactured goods, perishables, precision instruments and consumer chemicals. They represent 33 percent of the Asia to North America air freight, which is 2 percent of the world air freight demand.

Between 1995-2000, the daily traffic from Asia to North America increased 10.8 percent annually, an average daily volume of 2,639 tonnes. Over the forecast period, MergeGlobal expects the daily traffic to grow 5.4 percent per year, generating an increase of 1,985 tonnes.

Between 1995-2000, the traffic increased 3.8 percent for the North America to Asia market, an increase of 813 tonnes per day. Over the forecast period, MergeGlobal forecasts the average daily traffic will grow 6.4 percent per year, an increase of 1,740 tonnes of daily traffic.

Europe-North America

The market includes air freight traffic between Europe (including Western and Eastern Europe and the CIS) and United States and Canada.

The eastbound market from North America to Europe represents 46 percent of the total market and 7.2 percent of the world air freight market, generating an average of 4,902 tonnes per day. The Europe to North America market generates 5,713 tonnes per day, 8.4 percent of the world daily air freight traffic.

European countries rely on North America in two key sectors: information technology and precision instruments. The main industry sectors comprising the eastbound market are intermediate manufactured goods, computers and peripherals, service industry machinery, precision instruments and industrial chemicals, making up 38 percent of the average daily North America-Europe market.

Production machinery and automotive goods are the top commodities flown into North America. The principal commodities in the westbound market are service industry machinery, intermediate manufactured goods, apparel and footwear, automotive and perishables, representing 37 percent of the westbound Europe-North America market.

Between 1995-2000, daily traffic grew 8.2 percent for the Europe-to-North America market, an increase in daily traffic of 1,863 tonnes. Over the forecast period, we calculate this will grow 4.7 percent annually, generating an increase of 1,471 tonnes.

For the five years before and including 2000, average growth in the Eastbound North America-Europe market was 4.7 percent, an average daily traffic increase of 1,863 tonnes. Over the forecast period, MergeGlobal predicts the average daily traffic will grow 7 percent per year, an increment of 1,973 tonnes of daily traffic.

North America-Latin America

This market consists of air freight traffic between Latin America (including Central America, South America and the Caribbean) and the United States and Canada.

Latin America has 9 percent of world population (502 million potential consumers). Latin American GDP was $2 trillion in 2000 and grew an average of 3 percent per year from 1995 to 2000. The top industry segments (62 percent of Latin American manufacturing) are: processed food, intermediate manufactured goods, raw commodities, basic materials and automotive.

The northbound market from Latin America to North America represents 55 percent of the total bi-directional market and 4 percent of the world market, generating an average of 2,650 tonnes per day. The North America to Latin America market accounts for 2,210 tonnes per day, or 3 percent of the world market.

The driving force behind South American exports to North America is the willingness of U.S. consumers to purchase expensive perishable products, particularly fresh-cut flowers from Colombia and contra-seasonal perishables from Chile. However, there is also a significant demand for products in other sectors.

The establishment of production plant capacity in Latin America by multinational corporations to cater to end users in the region is a key demand driver. Consumer spending drives demand for goods in both markets.

The principal industry sectors comprising the northbound market are perishables, apparel and footwear, processed food, automotive and electrical industrial apparatus, making up 78 percent of the average daily Latin America to North America market.

The primary industry sectors in the southbound market are computers and peripherals, intermediate manufactured goods, apparel and footwear, telecommunications equipment and automotive, making up 33 percent of the average daily North America to Latin America market.

Between 1995-2000, the daily traffic increased an average of 5.4 percent per year for the northbound Latin America-North America market, an average increase in traffic of 613 tonnes per day. Over the forecast period, MergeGlobal predicts a growth of 5.6 percent annually, generating an increase of 835 tonnes of daily traffic.

Between 1995-2000, the average daily traffic increased 3.8 percent per year for the southbound North America-Latin America market, an average increase of 379 tonnes. Over the forecast period, MergeGlobal predicts this traffic will grow 6.9 percent, generating an increase of 879 tonnes.

Europe-Asia

The westbound market from Asia to Europe represents 57 percent of the total bi-directional market and 7 percent of the world market, generating an average of 4,508 tonnes per day. The Europe to Asia market accounts for 3,456 tonnes per day, 5 percent of the world market.

The propensity for Asian consumers to purchase high-end, luxury items (perfumes, leather, wine) is a large factor determining eastbound trade. Also, process machinery built by efficiency-conscious Europeans, as well as telecommunications equipment from Scandinavian manufacturers such as Nokia and Ericsson, play key roles in determining trade growth.

The main industry sectors comprising the eastbound market are perishables, intermediate manufactured goods, service industry machinery, production process machinery and consumer chemicals, altogether making 40 percent of the Europe to Asia market.

European multinationals with factories in Asian countries produce various parts that are sent to Europe for assembly. This, coupled with a demand for apparel and footwear produced in Asia, accounts for much of the westbound trade.

The main industry sectors comprising the westbound market are computers and peripherals, apparel and footwear, intermediate manufactured goods, consumer non-durables and textiles, making up 51 percent of the Asia to Europe market.

Between 1995-2000, the Europe to Asia daily traffic increased an average of 1.9 percent per year, an average increase of 314 tonnes. Over the forecast period, MergeGlobal predicts the daily traffic will grow 5.1 percent annually, generating an increased volume of 969 tonnes.

For the last five years, the average traffic increased 9.8 percent each year for the Asia to Europe market, an average daily traffic increase of 1,679 tonnes. Over the forecast period, MergeGlobal predicts this will grow by 7.2 percent per year, generating an increase of 1,862 tonnes.

The five dominant commodities in the westbound Europe-Asia trade are: intermediate manufactured goods, service industry machinery, production process machinery, electrical industrial apparatus and computers and peripherals, generating 357 tonnes of new daily traffic in the forecasting period. The corresponding group for eastbound Asia-Europe trade is computers and peripherals, intermediate manufactured goods, apparel and footwear, consumer non-durables and electrical industrial apparatus, generating 1,024 tonnes of new daily traffic.

They represent 37 percent and 55 percent share of respective new daily traffic generated in each direction.

Europe-Latin America

The westbound market from Europe to Latin America represents 54 percent of the total bi-directional market and 2 percent of the world market, generating an average of 1,244 tonnes per day. The Latin America to Europe market accounts for 1,041 tonnes per day, which is 1.5 percent of the world market.

Demand for industrial machinery from Europe in Latin America stems from the availability of specialty machines for different industry sectors, particularly for parts and machines involved in the production process. Furthermore, components for automobile makers such as Renault and Volkswagen are flown from Europe to Latin America for assembly at these firm's local factories.

Consumer spending fuels several of the largest eastbound shipper segments from Latin America. Electrical industrial apparatus, service industry machinery, intermediate manufactured goods, production process machinery and automotive are the largest shipper segments for the westbound trade, accounting for 46 percent of the Europe to Latin America trade.

From 1995-2000, daily traffic increased by 5.6 percent per year for the Latin America to Europe market, an increase of 246 tonnes daily during this period. Between 2000-2005, MergeGlobal expects the traffic will grow at a rate of 5.4 percent annually, generating an increase of 314 tonnes a day.

Between 1995-2000, the average daily traffic increased by 7.9 percent per year for the Europe to Latin America market, an increase of 395 tonnes per day. For the 2000-2005 period, MergeGlobal forecasts the average daily traffic will grow by 4.7 percent per year, equivalent to an increase of 321 tonnes daily.

For the period 2000-2005, the principal commodities imported by Europe from Latin America will be perishables, intermediate manufactured goods, automotive, service industry machinery and industrial chemicals, amounting to 204 tonnes of daily traffic, representing 65 percent of total incremental growth. For Europe to Latin America trade, electrical industrial apparatus, intermediate manufactured goods, automotive, service industry machinery will amount to 136 tonnes of daily traffic or 42 percent of the total incremental growth.

Europe-Africa

Africa's population consists of 772 million consumers, which is 13 percent of the world population.

The northbound market from Africa to Europe represents 57 percent of the total bi-directional market and 1.8 percent of the world market, generating an average of 1,221 tonnes per day. The Europe to Africa market accounts for 935 tonnes per day, 1.4 percent of the world market.

African GDP was $559 billion in 2000. It has grown by 3.7 percent per year since 1995. The top industry segments in Africa include: basic materials, processed food, intermediate manufactured goods, raw commodities and perishables. These industry sectors represent 67 percent of total manufacturing production for that market.

The willingness of European consumers to purchase perishables (such as flowers from Kenya) drives the northbound Europe to Africa market. Contra-seasonal growth in southern Africa allows European food distributors to provide grocery stores with fresh fruit and other seasonal agricultural products.

A factor acting as a trade impediment is the HIV plague that has decimated Africa's population, reducing the workforce, dramatically influencing GDP levels and limiting future development.

The main industry sectors comprising the northbound market are perishables, apparel and footwear, processed food, intermediate manufactured goods and textiles, making up 76 percent of the average daily Africa to Europe market.

The main industry sectors comprising the southbound market are: intermediate manufactured goods, service industry machinery, textiles, electrical industrial apparatus and production process machinery. These segments account for 36 percent of the total market.

Between 1995-2000, the average daily traffic increased by 7.6 percent per year for the northbound Africa-Europe market, an increase of 375 tonnes. Over the forecast period, MergeGlobal predicts the average daily traffic will grow 4.8 percent annually, generating an increase of 321 tonnes in daily traffic.

For the period 1995-2000, the average daily traffic increased at a rate of 2.1 percent per year for the southbound Europe-Africa market, an average daily increase in traffic of 93 tonnes. Over the forecast period, MergeGlobal predicts the average daily traffic will grow 2.7 percent per year, generating an increase of 134 tonnes in daily traffic.

The five dominant commodities in the southbound Europe-Africa trade will be: computers and peripherals, electrical industrial apparatus, intermediate manufactured goods, textiles and consumer chemicals, generating 42 tonnes of new daily traffic in the forecasting period. The corresponding group for northbound Africa-Europe trade will be perishables, apparel and footwear, electrical industrial apparatus, processed food and intermediate manufactured goods, amounting to 234 tonnes of new daily traffic. They represent 31 percent and 73 percent share of respective new daily traffic generated in each direction.

Europe-Middle East

This market includes air freight traffic between Europe and the Middle East: Bahrain, Egypt, Iran, Iraq, Israel, Jordan, Lebanon, Oman, Qatar, Saudi Arabia, Syria and the United Arab Emirates.

The Middle East's population accounts for 3 percent (154 million potential consumers) of the world population. Middle Eastern GDP was $525 billion in 2000 and grew at an average annual rate of 2.4 percent from 1995 to 2000.

Middle Eastern countries are heavily dependent on other countries for most of their commodities. Trade demand is positively correlated with oil prices for most of the Middle Eastern countries. Additionally, there is a need for equipment, much of which is produced in Europe, to support oil production.

The eastbound market from Europe to the Middle East represents 64 percent of the total bi-directional market and 1.8 percent of the world market, generating an average of 1,223 tonnes per day. The Middle East to Europe market accounts for 682 tonnes per day. This trade accounts for 1 percent of the world market.

The sea-air intermodal activities in the United Arab Emirates accounts for much of the air freight from this region to Europe. Finished apparel is sent by containership from the Indian subcontinent to the UAE where it is stripped from the marine containers and transported by air to Europe. Additionally, the high concentration of engineers in Israel accounts for the increase in information technology production in that area.

The principal industry sectors comprising the eastbound market are perishables, intermediate manufactured goods, raw commodities, service industry machinery and electrical industrial apparatus, making up 42 percent of the Europe to Middle East market.

The primary industry sectors comprising the westbound market are perishables, intermediate manufactured goods, processed food, apparel and footwear and service industry machinery, making up 54 percent of the Middle East to Europe market.

Between 1995-2000, the average daily traffic increased 4.6 percent annually for the Europe to Middle East market, an average daily traffic increase of 248 tonnes. Between 2000-2005, MergeGlobal calculates the traffic will grow 4.2 percent per year, generating an increase of 280 tonnes daily.

Over the last five years, the average daily traffic increased at a rate of 7.1 percent per year for the westbound Middle East-Europe market, an average daily traffic of 197 tonnes. Over the forecast period, MergeGlobal predicts the traffic will grow 5.4 percent annually, generating an increase of 205 tonnes in daily traffic.