Changes in preferred modes of freight
There is a variety of modes in which freight can be transported, including by air, ocean, road or railroad. CEVA has differing market positions and exposure
to various modes of freight, which have differing margin levels and net working capital requirements. While not all of these modes are interchangeable,
depending on the origin and destination of freight CEVA’s customers have substantial flexibility to choose the mode that best suits their needs in terms of
type of freight, cost, speed, certainty of arrival time and other factors. Trends in preferred modes may shift over time as their characteristics change or CEVA’s
customers’ priorities change. For example, during periods of economic contraction and inventory de-stocking, certain customers may find that speed and
certainty of arrival time is less important than when inventory levels are tight. If this is the case, such customers may choose ocean freight as a lower-cost
but slower alternative to air freight. CEVA has experienced a shift in its Air Freight volumes to Ocean Freight volumes, particularly in Asia, which contributed
to a softening of its overall Air Freight volumes and negatively impacted its margins and net working capital requirements. This trend started in 2012 and
continued in 2013 and 2014. While these trends may to some extent be cyclical in nature, there can be no assurance that the trend from Air Freight to Ocean
Freight does not continue, and CEVA may not be able to prepare for or predict future shifts in demand for particular transportation services, which may have a
materially adverse effect on its business.