August 2007 Newsletter
Fourteen Years Young & Still Growing Stronger
It is hard to realize, but
last month CII celebrated its fourteenth year in
business. A lot of water has flowed over the dam during
the past fourteen years, but the bottom line is that we
keep growing stronger. We have expanded domestically
from our original headquarters at LAX to offices in New
York (JFK) and Atlanta. Internationally, CII now has
facilities in Asia (Taiwan) and New Zealand (Auckland)
in the South Pacific. Despite our expansion, however,
the way we do business remains the same. Personal
service and more personal service is our mission and has
been the secret of CII’s success. Our address has
remained the same as have our phone and fax numbers.
Even our phone system where a real live person, no
machine, always answers the phone is the same although
we have added new lines to handle our increased volume
of calls.
Our preferred airlines hardly have changed. They were
the prime carriers to our principal destinations then
and remain so today. Sure, our technology has moved with
the times and yes, our staff has grown more than ten
times; from three to thirty five. With all this
progress, however, Peter Lamy and I have kept to the
same philosophies we adopted when CII first opened its
doors. Some may think of us as anachronisms but many
more will say there is nothing wrong in stressing old
fashioned service and remaining true to our beliefs and
principles.
Peter and I still possess the same passion about our
jobs as when we first opened CII’s doors back in 1993.
While our company has grown physically, our mental
attitude has been, hopefully, to change only for the
better and to respect the culture of our company. We
believe it is human input that makes the difference. We
don’t try and set rules by which our staff must abide.
We consider it melancholy that an employee’s manual has
to be disseminated to our people. But in this litigious
age, CII must protect the best interests of the company
and protect our most valued asset; the CII family.
My fourteen year-old chair is starting to show wear. But
as uncomfortable as it has become, I can’t part with it.
From that chair, too many decisions have been made that
have kept our customer base growing and the company
moving forward. Today, CII is the largest independent
wholesaler in the U.S. We’ve also made some mistakes,
but happily our right decisions have far outweighed our
wrong ones. We look forward to serving our industry for
at least fourteen more years.
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Exquisite Timing By Chinese & American Governments
 Despite massive overcapacity and falling rates in the U.S.-China
air cargo market, the Chinese and American governments, with
exquisite timing, have proclaimed proudly a new air services
agreement between the two nations. The new agreement will allow
greater number of passenger flights leading to a doubling of
these flights by 2012, and to quote the official statement,
“enhanced commercial opportunities for air cargo.”
As far as air freight is concerned, the deal is a lot of hot
air. Although the two nations call the new agreement “historic,”
there is nothing historic about the deal for airlines flying
freighters into China and for the forwarders who supply 90 per
cent of the cargo on those airplanes. The depressing fact is
that a whole group of new entries like Jade Cargo and Shenzen
Cargo are adding lift capacity on top of the multitudes of
“legacy” carriers who are buying and flying new oversized cargo
aircraft like there is no tomorrow.
The new agreement, which supposedly will lead to an “Open Skies”
arrangement a few years from now (with greater number of
flights) is another sad example of how hopelessly behind the
times government bureaucrats are in assessing the true picture
of an industry that is going south while they open the door to
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Whither China?
 Just as the 20th Century was labeled the “American Century,” so too
are many prognosticators and futurists calling the 21st Century, the
“Chinese Century.” To place an enormously flawed social, political
and economic society as China on the same level as the U.S.is
absurd. Yes, China has become the world’s manufacturing center and
is the strongest military power in Asia. Moving beyond its cheap
labor force, however, is a hollow core. Too many in our business
community cannot look beyond thousands of factories grinding out
millions of low cost products enhancing their balance sheets to see
a nation with a rotten center. Our own transportation industry has
become far too dependent on this market. A number of air and ocean
carriers already are regretting their over dependence on China
trade. Just ask Maersk who has pulled out huge containerships off
the China market. Or Air Canada who is eliminating cargo flights out
of Shanghai or Lufthansa who is reducing cargo lanes between China
and Europe.
What country is following the Chinese example of a mixed
communist-capitalist society? None. It is not the Chinese example
but radical Islam fundamentalism that I believe will have far more
influence on world society than China.
Environmental degradation will be one of the most important
challenges during this century. Who is the worst offender of global
warming? Just ask any visitor to a major Chinese city who sees and
breathes the worst polluted air on the planet. The Chinese never
talk about their “hidden” unemployment. Yet, tens of millions of
unemployed rural workers have flocked to the cities in search of
jobs, however low the pay and however bad are the working
conditions. Although the Chinese government refuses to issue
unemployment statistics, I have seen with my own eyes when visiting
large Chinese cities the huge amounts of homeless people sleeping on
street corners and in alleyways.
The Chinese government continues to report huge trade surpluses,
particularly with the U.S. Yet, overcapacity continues to plague
both air and ocean trade with China. There is a disconnection here.
Slightly rising exports to China from the U.S., primarily because of
the weakened dollar, can’t begin to explain this discrepancy. Does
China have an Achilles heel? Yes, in the refusal by its government
to allow even a slight loosening of the reins of power. That tight
control ultimately will make the 21st Century, the “Un-Chinese”
Century.
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Has Forwarder Merger Mania Run Its Course?
A few years ago, hardly a month went by when a merger or
acquisition by two mega forwarders wasn’t announced.
Today, years later, those surviving companies still are trying
to sort out their personnel and operations. Mergers are out, but
taking over poorly run forwarders by sharp, knowledgeable air
freight veterans may be the next trend. Case in point; an
unsuccessful forwarder known as Interjet was acquired recently
for little more than pennies on the dollar by Dutchborn Hank
Hartung and a group of former AEI executives. Hartung, who sold
off AEI to Deutsche Post about eight years ago for big bucks,
has renamed the forwarder IJS Logistics and is working hard to
build a mid-sized operation with its own offices (not
franchises) in key locations worldwide and with a professional,
experienced staff.
Perhaps most importantly, Hartung is attempting to bring back
“old fashioned” service as the hallmark of his company. In
public and private announcements, Hartung has criticized his old
boss, AEI, as “too big, too rigid, cumbersome and lacking in
personal service.” He believes the success of the Emery’s, BAX
Global’s and MSAS’ was based primarily in moving heaven and
earth to satisfy a customer. I completely share his beliefs that
a return to basics is necessary for the success of our industry.
We no longer can depend on the giants of our industry to make
positive changes. Smart executives of these companies are simply
packing it in to either establish “IJS” of their own or join
smaller companies. There, they can return to an environment
where work is fun, not drudgery, and where they can spend the
day actually contacting their customers, sitting in operations
rooms watching their colleagues at work, actually walking on a
loading dock to inspect freight and to make sales & service
calls. These are the basic tenets of running a successful
enterprise.
Not more than fifteen years ago, I was in partnership with a
morally and fiscally bankrupt forwarder. Senior executives there
worried far more about how many pieces of polished mahogany
furniture they had in their offices, how many hundreds of square
feet the offices were and was it a corner office—than about the
well being of their customers. The DiMedicis had nothing on them
for stabbing colleagues in the back and blowing their own horns.
The company went bankrupt simply because their leaders were
morally bankrupt. Profit-Lep was just a few years ahead of its
time.
Current shenanigans include Jim Crane’s ill-fated attempt to buy
back Eagle. What decent, hard working executive wants to report
to a Jim Crane who secretly inserted a $30 million “break-up”
fee to himself if the deal did not go through? Now, morally
principled executives can break out and do their own thing; to
succeed on their merits much to the chagrin of their former
employers.
Hartung’s operation is just the start of new beginnings in our
industry.
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FedEx Next Buy-Out Candidate?
 Anyone who reads the financial pages of any big city
newspaper from Los Angeles to London can’t be ignorant of
the huge amounts of private buy-outs of public companies by
the big private equity firms like Blackstone & KKR. These
companies, generally using borrowed money thrown at them by
obliging banks, have taken public companies private by the
barrelful, spending hundreds of billions of dollars in the
process.
No company, no matter how large or well run, is considered
safe anymore. Not even the poster boy of the transportation
industry, FedEx. FedEx indubitably is one of the greatest of
American brands and could lure a private buyer at 20 per
cent or more above its current per share price. Too big, you
say? Not these days. FedEx’ $35 billion dollar value puts it
squarely in the bullseye of big deals favored by cash rich
LBOs. Too cyclical? Not really, given FedEx’ steady growth
rate and strong international and ground business. Too tough
to finance? LBOs and their banks seemingly can finance
anything these days and don’t forget FedEx’ hard assets in
the form of nearly 700 aircraft and 44,000 trucks.
The only weak sister in FedEx’ operations is Kinko’s (a rare
mistake by Fred Smith) but the private equity folks never
saw a business they couldn’t turn around. The only major
obstacle is Mr. Smith himself, who never has given any
indication that he would be amenable to going private. But
money talks. Put enough dollars on the table and even Fred
might sign over his pride and joy. Smith still is relatively
young. He could emulate Bill Gates and spend the rest of his
days as a munificent philanthropist scattering largesse to
many needy charities.
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It’s Tough To Make A Buck In Domestic Cargo
 Last month, domestic air cargo carrier Kitty Hawk announced that
it was “exploring strategic alternatives to determine the best
course of action for its shareholders.” In plain English, Kitty
Hawk was putting out a “for sale” sign. The possible fire sale
of this all-cargo airline is but another indication of how tough
it is to make a buck in domestic air cargo. As a matter of fact,
Kitty Hawk’s stock is selling for only a buck a share while its
two top executives; Robert Zoller, CEO, and Board Chairman
Gerald Gitner, were given the old heave-ho by an irate Board.
Many have tried, but no one ever has made money flying domestic
cargo. When the old CAB allowed freight forwarders to fly their
own airplanes, the big consolidators like Burlington Northern
Air Freight and Emery Air Freight rushed in with fleets of
ageing DC-8 aircraft. Burlington corrected its mistake quickly;
de-emphasizing air service and creating a strong network of
truck operations. Emery was slower to react, not realizing that
running an airline was a far different proposition than acting
as a middleman.
Emery paid the consequences. The company that started the modern
air freight business became a hapless pawn in take-overs by
various transport firms little stronger than they.
While Kitty Hawk was touting its overnight capabilities by air,
the company’s forwarder customers increasingly were turning to
less costly time definite and deferred deliveries by truck. The
airline was much too slow to establish a viable surface network
to complement its air fleet. Kitty Hawk is paying the
consequences for its tardiness with a near bankrupt airline.
Not only are forwarders abandoning domestic air, what little
cargo remains is primarily handled by the combination carriers.
It’s almost impossible for an allcargo airline to charge
compensatory rates when passenger carriers still consider
freight an incremental income and price it less than moving by
truck. Even mighty FedEx is not immune to this trend. The
company’s ground operations are growing like gangbusters while
its heavyweight domestic air division is going nowhere.
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In Memorial
 In April of this year, John C.
Emery, Jr., died at the age of 82 at his home in
Connecticut. Emery, Jr., a giant in the air freight
industry, was the son of another giant, John C. Emery, Sr.
who founded the eponymous company after World War II and
almost single handedly created the modern air freight
industry. Starting as a truck driver for Emery after serving
in the U.S. Navy during World War II, Emery, Jr. rapidly
rose through the ranks to become President. Hardly just the
scion of a very successful executive, Emery, Jr. brought
fresh ideas and methods to the Wilton, CT- forwarder.
Upon his retirement, Emery was operating 180 offices with
10,000 employees. It had grown from an $80 million company
to a company with $1.2 billion in revenues and was part of
the “nifty fifty” group of growth stocks on the New York
Stock Exchange. Emery, Jr’s principal regret was that his
“no” vote to start the company’s own air fleet after the CAB
gave permission to forwarders to do so, was overidden by the
Company Board of Directors who voted to go ahead. Emery, Jr.
wanted to remain a “pure” forwarder and history has proven
him correct. Its air fleet started a long, slow slide of
once the greatest name in air freight.
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Julian
Keeling
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