October 2008 Newsletter
Nation's Meltdown Not Unique To U.S.
 Having been born in New Zealand, lived and worked in
Australia and now a proud citizen of the United States,
I can say with some assurance that the nation's
financial meltdown is not unique to the U.S.. Australia
and New Zealand also have experienced in their histories
the wrenching shocks of a financial collapse where stock
prices headed south, credit dried up, housing prices and
sales plummeted, unemployment rose as the nations'
"misery indexes" climbed at a rapid rate.
While details of a financial collapse differ among the
three nations, the basic reasons are strikingly similar.
First and foremost, a lack of and disinterest in
regulatory controls over the financial sectors of the
economy, allowing greed and avarice to run rampant.
Uninhibited speculation in financial paper assets like
stocks and bonds, and "hard" assets like commodities.
New and clever ways to slice and dice financial
obligations like the increasingly popular derivatives
that become more profitable to trade than the underlying
securities. A casino-like atmosphere replacing the
normally staid stock and bond markets.
"Perhaps the U.S. would do
well to have more people
thinking about engineering
actual structures rather than
the "structured products" of
Wall Street."
There is no doubt that the worst U.S. credit crunch and
housing collapse since the Great Depression of the 1930s
has resulted in no small measure from unprecedented
negligence by government and quasi-governmental
authorities. Under the Bush Administration, "free
markets" have been allowed to inflate like balloons
until they collapsed under their own weight. While
Senator McCain insisted the economy is "sound," (shades
of Herbert Hoover), a number of the nation's largest and
oldest financial institutions like Merrill Lynch and AIG
are bailed out by belated government action or are sold
off like Washington Mutual. While supply siders shrug
off the nation's financial calamity with a philosophical
"stuff just happens," somebody makes that stuff happen.
Full disclosure of just who allowed all this to occur
and to apportion blame is the first step in attempting
to assure an anxious nation that it will never happen
again.
"Under the Bush Administration,
"free markets" have been
allowed to inflate like balloons
until they collapsed under
their own weight. While
Senator McCain insisted the
economy is "sound," (shades
of Herbert Hoover), a number
of the nation's largest and
oldest financial institutions like
Merrill Lynch and AIG are
bailed out by belated government
action or are sold off like
Washington Mutual."
Perhaps there is one sliver of hope amid the encircling
clouds of doom. Perhaps the best and brightest of our
young people no longer will be attracted to Wall Street
and its basic function of shuffling paper. Perhaps many
of the country's best and brightest students might now
recognize that a new path to wealth isn't working for a
brokerage firm or hedge fund but to look elsewhere among
more traditional industries.
This is a potentially positive development. It
encourages our nation to return to creating, building
and doing instead of shuffling paper and trading it.
Perhaps the U.S. would do well to have more people
thinking about engineering actual structures rather than
the "structured products" of Wall Street. If we can turn
this potential into reality, our nation will be better
off for it.
Back to Top
| |
Where Does Air Freight Fit In Amongst All This Gloom & Doom
 While the financial markets are
reeling, what's happening in our little corner of the world--air
freight? Domestic and international volume is down, but we
haven't fallen off a cliff. Oil prices (at this writing) have
dropped by a third but forwarders and their customers find
airlines are only slowly and grudgingly lessening their fuel
surcharges. International traffic is down about 3-4 per cent, a
rather negligible drop considering the mayhem occurring in other
sectors of the economy. Domestic traffic is weaker than
international, but this is an old story. Shippers have been
fleeing domestic air for lower cost truck for some time.
Surprisingly, ocean shipping is taking it on the chin to a far
greater extent than air. West coast port volume is down
substantially and east coast harbors are seeing fewer ships
dropping anchor there. Importers of apparel, toys, furniture,
furnishing and other consumer items that move overwhelmingly by
sea have been more cautious about the upcoming Holiday season
for some time. They have pared their shipments from Asia and the
steamship lines are hurting. Almost every day, announcements are
made of cutbacks in ocean service.
"Surprisingly, ocean shipping
is taking it on the chin to a
far greater extent than air.
West coast port volume is
down substantially and east
coast harbors are seeing
fewer ships dropping anchor
there. Importers of apparel,
toys, furniture, furnishing and
other consumer items that
move overwhelmingly by sea
have been more cautious
about the upcoming Holiday
season for some time."
Air, with its emphasis on high value, hi-tech products, is
showing far greater resiliency during this downturn. The South
Pacific, source of 75 per cent of CII's business, is
particularly strong. Our problem is not so much finding business
as finding lift. While the majority of our schedules remain
direct flights from the U.S. to Australia and New Zealand, we
also are using Singapore Airlines to move our freight through
its Asian hub. The airline has so-called "fifth freedom" rights
which allows the carrier to fly from the U.S. to Australia via
Singapore.
Back to Top
|
China Rebuilding Its Infrastructure While The U.S. Lags
 Readers of our
Newsletter are well aware that I am not shy in criticizing China
when I believe that criticism is justified. But in one critical
phase of development, the nation's infrastructure, China is
miles ahead of the U.S. in building new highways, rail lines,
sea and airports compared to the United States. Granted, the
awarding to China of the 2008 Olympic Games was a huge stimulus
to modernize the nation's antiquated infrastructure. Its
political leaders saw a huge opening to build almost from
scratch a modern transportation system, and took full advantage
of this opportunity. During the past seven years, the Chinese
have poured more than $500 billion into construction projects,
mobilizing the resources of the entire nation. Its people have
worked with almost a single purpose to transform its
infrastructure from one of the oldest to one of the newest.
Contrast these seven years of enormous financial, social and
political investments to the U.S.' paltry attempts to modernize
our transport system. Our attempt to update the U.S. air control
system is a good example of government bumbling and delay. The
FAA has been trying to bring the system into the modern, hi-tech
era for the past ten years. Its efforts have been stymied by a
do-nothing Congress and an indifferent Administration.
Perhaps too many billions of dollars have been funneled into
homeland security, combined with the Bush Administration's war
of choice in Iraq. Most if not all of expenditures for homeland
security are necessary, but how many billions have been wasted
in attempting to force down the throat of the air freight
industry regulations that would inhibit and perhaps even destroy
the ability of forwarders and airlines to move our customers'
shipments in a timely and efficient manner.
Of course, the Chinese government doesn't have to worry about
public opinion. If they want to build a new highway or new
airport, they just clear out the hundreds of thousands of people
living in the affected areas without worrying about their
opinions. In the U.S., we go to the opposite extreme.
As soon as a project is announced involving construction of new
or expanded transport facilities, hordes of lawyers representing
environmental and other "good government" groups descend on the
courts to gain injunctions to stop the projects. I am convinced
that if the two famous bridges in the San Francisco-Bay area,
the Golden Gate and Bay Bridge had not been built in the 1930s,
they never would have been constructed today because of a slew
of environmental and financial objections.
Perhaps we need more of the Chinese attitude. Make the necessary
investments in our infrastructure without allowing lengthy and
often spurious objections to hamstring the projects. Rebuilding
our infrastructure is vital if the U.S. is to prosper and remain
competitive.
"Perhaps we need more of the
Chinese attitude. Make the
necessary investments in our
infrastructure without allowing
lengthy and often spurious
objections to hamstring
the projects. Rebuilding our
infrastructure is vital if the U.S.
is to prosper and remain
competitive."
Back to Top
| |
Politicians Decry NAFTA But It Will Be Tough To Change
 NAFTA is generating a great deal of unwelcome publicity
during the current Presidential campaign. The trade
agreement between the U.S., Canada and Mexico will be
generating even more attention as our economic woes
deepen. The Republican nominee, John McCain, voted for
NAFTA. As a senator from Arizona, a state bordering on
Mexico, he believes it should be strengthened.
Democrats, led by Barack Obama, are decrying the trade
agreement and plan to amend it drastically if they win
the White House. Ironically, NAFTA became law under the
Clinton Administration.
Despite all the high profile promises made by the
Democratic candidate to change NAFTA, the road to
reforming the most famous trade agreement in U.S.
history will take a much longer time and will be pitted
with more potholes than even the most determined
amenders suspect. What is clearly written into the
current NAFTA agreement is that all three nations must
agree to any changes. NAFTA cannot be renegotiated
unilaterlly. Canada and Mexico must agree to any and all
changes, before any change goes into effect.
Unfortunately, neither nation shows the slightest
inclination to open NAFTA to renegotiation.
What kind of balance sheet does NAFTA present after
fourteen years on the books?
On the plus side, trade between the U.S., Canada and
Mexico has increased. Whether the NAFTA agreement has
contributed to this upsurge in trade is debatable. A
question honestly can be raised, "would trade have
continued to increase without NAFTA?" I believe the
answer is "yes." Commerce between nations without any
formal trade agreements has increased substantially
during the past fourteen years of NAFTA's existence. On
the negative side, American jobs definitely have been
lost.
"Maquiladora" plants along the U.S.- Mexican border
either have been opened or existing factories expanded
during the past decade and a half. U.S. manufacturers
are taking increased advantage of Mexico's nearness to
the United States, cheap Mexican labor and the removal
of import duties to build a greater presence in Mexico.
Canadian exports to the U.S. have increased enormously
during this time, but the rise in volume can be credited
primarily to the demands of the U.S. economy for
commodities supplied by our Northern neighbor. These
commodities, consisting of paper and wood products, oil
and raw materials, move almost wholly by rail, truck or
pipeline. U.S. exports to Canada, consisting primarily
of manufactured products, have remained essentially
flat.
Our particular interest, air freight, has benefited
hardly at all during the NAFTA years. There has been
slight growth by air but that increase has been dwarfed
by the enormous rise in surface traffic. Shippers are
looking for cheap trucking service, not expensive air.
If trucking firms are willing to move freight between
New York and Toronto at 10 cents per pound, who can
blame shippers for using them? Surface volume between
the U.S. and Mexico also will continue to grow as
Mexican truckers for the first time can transit
interstate highways.
Will trade agreements along the lines of NAFTA be struck
in the future? My prediction, in no way. Protectionism
is rising in both parties despite McCain's embrace of
free trade. Too many American jobs have been lost and
too many regions have been stripped of their
manufacturing facilities due to outsourcing, for
politicians to dare write, let alone pass NAFTA-like
legislation.
"Despite all the high profile
promises made by the
Democratic candidate to
change NAFTA, the road to
reforming the most famous
trade agreement in U.S.
history will take a much
longer time and will be pitted
with more potholes than
even the most determined
amenders suspect."
Back to Top
|
Airports Joining The Surcharge Brigade
It's bad enough paying those fuel surcharge tacked on by
the airlines. Now, airports are getting into the act. At
New Delhi, India, its international airport is charging
a " congestion fee" of $15 to each passenger in addition
to the airlines' fuel surcharges.
Exactly what is a congestion fee? Because the private
developers charged with upgrading and expanding the
airport are five years behind schedule, they are
charging innocent passengers for the delays,
inconveniences and cost over-runs caused by their own
incompetence. How's that for sheer arrogance?
Back to Top
Julian
Keeling
|
|
