April 2007 Newsletter
U.S. Falling Behind In China Trade
 There is little doubt that
just after a few years into the 21st century, China has
become the most important and challenging trading partner
with the U.S. All indications point to an acceleration of
this trend as we move deeper into the century. Our trade
deficit with China is reaching historic levels. Never before
in our history has the U.S. recorded such a huge deficit
with any one nation. Largely because of this trade deficit,
China now owns the staggering amount of $1 trillion in U.S.
Treasury securities.
Our trade deficit with the “Celestial Kingdom” has escalated
from $83 billion in 2000 to more than $200 billion in 2006.
Fully 7 percent of our nation’s GDP is generated by our
trade deficit with China. That nation’s share of ocean
container volume from Asia into the U.S. has grown from 11
percent in 2000 to 70 percent in 2006. Air freight volume
from China has catapulted from 20 percent of all cargo from
Asia at the turn of the century to almost 80 percent today.
Our trade with Europe, the Middle East and Latin America is
flat at best and declining at worst. Without China, there
would be no growth at all either in air or sea commerce.
Walk into any Wal-Mart or Target store and at least 75
percent of the merchandise on their shelves originates in
China. West Coast seaports would stagnate without China
trade. With China out of the picture, we could throw away
all the Boeing 747 freighters flown today or being built.
What can the U.S. do about this enormous trade imbalance and
dependence on one country? So far, it’s all talk and no
action. Our Secretary of the Treasury, Henry Paulson, keeps
flying to China for “talks.” While there, he makes brave
statements urging China to concentrate on the nation’s
domestic market, raise its currency, lower import duties and
open up financial markets to westerners. The Chinese arrange
lavish state dinners for Mr. Paulson and completely ignore
his advice.
The U.S. never should be dependent on one nation, any
nation, for our country’s prosperity. In my opinion, it’s
time not to talk tough but to act tough. Let’s not give the
Chinese a free ride. Let’s not allow our markets to be
flooded with their goods while U.S. companies face a maze of
restrictions in attempting to sell our products there.
Polite and “civilized” negotiations with the Chinese during
the past few years have gone nowhere. Let Congress stop
focusing on non-binding resolutions which do nothing to
shorten the war in Iraq and concentrate on meaningful
legislation that will place the U.S. on an equal footing
with China. Free trade is great in theory, but when hundreds
of thousands of jobs are lost throughout the U.S., a little
spoonful of protectionism isn’t such bad medicine.
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IATA Is Waking Up To Reality
 IATA, trade association for the international airlines, has long
been considered a lumbering, slow moving organization with its
feet firmly planted in mid air. But the enormous changes in
civil aviation since 9/11 is forcing even this most bureaucratic
of organizations to recognize today’s realities. At a recently
conference held in Mexico City, the theme of IATA’s meeting was
“Keeping It Simple Will Lead To Future Profitability.” I’m glad
to see mighty IATA is taking a leaf out of humble CII’s
playbook. We have been living with the philosophy of keeping it
simple since CII opened its doors thirteen years ago.
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Senate Showing More Sense Than House On Security
 Ever since 9/11, a debate has been raging on how ocean and air cargo
can be made safe from sabotage by terrorists. The U.S. House of
Representatives recently passed a truly draconian bill which
stipulates that international freight should receive the same
screening as passenger luggage by October, 2009. Fortunately, cooler
heads in the Senate, led by Jay Rockefeller (D-West Virginia)
realize the House bill is far too reaching and could jeopardize our
entire economy. A number of Senators are planning to modify it
substantially.
Our business certainly requires modification of this bill. If the
House bill becomes law, international air freight literally would be
grounded. There simply is no security equipment either being built
today, or under development, that would be quick, reliable and
operated by qualified staff to carry out such a massive job. While
inspecting cargo to be placed on freighter aircraft would be a huge
task, it pales besides checking freight in the bellies of the
enormously greater number of passenger airplanes. Passenger aircraft
carry about 6 billion pounds of international cargo per year. They
are typically goods that require fast shipment like auto and
electronic parts and ." perishables like seafood which is becoming
an increasing part of our business. With cumbersome screening
processes, much of that business would shift to ocean. Why pay the
much higher rates of air freight when its greatest advantage; speed,
is lost? Airlines are warning that many international passenger
flights would be canceled if they could not carry cargo. On many of
these flights, cargo is the difference between profit and loss.
Let’s have genuine security for ocean and air cargo, but also let’s
not kill the goose that lays the golden eggs. Let’s have a measured
approach to screening cargo that will balance our legitimate
security needs with the economic requirements of our nation.
"Let’s have a measured approach to screening cargo
that will balance our legitimate security needs
with the economic requirements of our nation."
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The Qantas Saga
Continues
 It seems like eons ago that a group of Australian, Canadian and
American investors bid for controlling interest in Qantas. There
were more hurdles in getting approval than at a track meet, but
success seemed to be finally in their grasp. Despite howls of
protest from the Australian media that Qantas was being
sacrificed to the gods of greed and avarice; that the proud
Australian flag carrier would become another no-frills airline,
government approval—crucial to a successful bid—was given. Now,
the private equity consortium’s almost $9 billion bid for the
airline is coming under strong pressure to withdraw as many
large institutional (and small) Qantas investors are balking at
the share price to be paid.
Even the government is having second thoughts. They now realize
that Qantas is not just another airline in Australia. Qantas has
just completed an outstanding year with profits higher than
expected. It owns an irreplaceable set of assets with an
outstanding service and maintenance record. There are tremendous
barriers for any new competition to enter the domestic
Australian market. In my opinion, unless the equity group raises
its bid considerably, the deal will not fly. Some lighter
moments from Qantas. The airline’s chairwoman, Margaret Jackson,
was interrogated recently by security officials at LAX because
they found detailed aeronautical diagrams in her hand luggage.
Ms. Jackson explained that she was chairperson of a major world
airline and the diagrams were part of her Board duties. She was
met with an incredulous response, “but you’re a woman, how can
you be head of an airline?” Jackson had to prove that indeed she
was head of Qantas by pulling out all kinds of identification
from her purse.
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Beatson, like Lazarus, Rises From The Dead
In last month’s Newsletter, I commented on how Bruno Sidler, former
president and CEO at Panalpina, had jumped from the frying pan into
the fire by taking an executive position at EGL Global Logistics.
Obviously, EGL’s head honcho, Jim Crane, is so busy buying his own
company, he didn’t have the time to find any better executive than
Sidler to fill the position.
"Obviously, Globalware Solutions was not
looking for solutions when it hired Beatson..."
  This month comes news of another Lazarus rising from the dead, this
time in the form of an announcement of the appointment of David
Beatson as CEO of a forwarding company up in Massachusetts,
Globalware Solutions. Obviously, Globalware Solutions was not
looking for solutions when it hired Beatson—one of the worst
executives in the cargo business. While he was head of Panalpina’s
North American division, Beatson together with Boss Sidler, almost
ruined that venerable Swiss forwarding firm. I’m constantly amazed
at how incompetent executives in our business not only shift from
job to job, but actually land positions with more pay and
responsibilities. I sometimes think our industry has a death wish
with so many forwarding heads better suited to the mail room than
the executive suite.
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More Productivity From Automation? Yes!
More Profitability? No!
 After reading for the umpteenth time another article on how much
more productive we freight forwarders have become since
automating our systems, I’ve been pondering one puzzling
question. Are all these fancy EDI systems making our business
more profitable, or less? Why is it that thirty years ago, when
forwarders had little more than a typewriter and telephone as
tools of the trade, return on investment was 20 percent? And why
is it that after the transportation industry has spent billions
moving into the cyberspace age, the forwarding industry’s
average return on investment is little more than 2 percent?
There’s a disconnect here. Isn’t automation supposed to lower
costs, thus making a business more profitable? That supposed law
of economics doesn’t seem to apply to moving freight. We are
offering customers more services, more information about their
shipments than ever before in transport history. Yet, we
forwarders don’t seem to be reaping the rewards of all this
largesse. Also, why is it that after thirty years of technical
progress, an international air shipment arrives at its
destination only six hours earlier than a generation ago?
Various “experts” tell us that we no longer can compete as plain
vanilla forwarders, but must become “supply chain strategists.”
But who’s laughing all the way to the bank? It’s not us chain
supply strategists but our customers. We’re already giving away
the store but our customers keep demanding not only the
merchandise but the fixtures as well.
Ironies abound in this age of cyberspace. One forwarding firm’s
CEO recently boasted of the number of operating people he didn’t
have to hire because computer automation was the doing the job
of tracking, tracing and invoicing his customers. In the next
breath, that same CEO said he had to hire ten new programmers to
handle the increased computer load. I suspect the ten new
programmers were far more expensive than any savings in
operational staff. Of course, that doesn’t include the hiring of
a software firm to develop a suitable program for the forwarder.
These costs generally run in six figures for a smaller
forwarding company and well into seven figures for the big boys.
And what happens when a shipment is late, missing or damaged?
Forget automation; the irate customer picks up the old fashioned
phone and wants to talk to a human to find out what’s happened
to his freight.
Forwarders should be less concerned about automation and take
more interest in their bottom line. Are we in business to serve
the customer? Yes. But our first order of business should be to
make a fair profit when we shed blood, tears and sweat to ensure
a customer’s shipment moves on time, in good condition and with
no hassles.
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Julian
Keeling
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