December 2006 Newsletter

How Will The New Congress Affect Freight Forwarding?

After twelve years, the Democrats have regained control of Congress. How will they differ from Republicans, particularly in regard to "globalization" of the world economy and free trade among nations? These questions are of enormous interest to the $1 trillion international transportation industry in general and the freight forwarder in particular. Perhaps without even realizing it, the freight forwarder has been placed squarely in the middle of the one of the greatest transformations in world economic history. Without this transformation into a global economy, huge new container ships carrying up to 8,000 TEUs would not be built. Boeing would not be making the advanced 747-8 freighter for the world's airlines. There would be no talk of widening the Panama Canal at a cost of $6 billion. Most international freight forwarders have witnessed an upsurge in revenues (if not in yields) during the past decade because of this huge increase in world trade.

Even before the Democrats swept the House of Representatives and took control of the Senate by just two votes, the U.S. commitment to an open global trading system was faltering. Now, at least five Senate and fifteen House seats have switched from members of Congress who were generally supportive of free trade to those who are expressing real skepticism. Also, public opinion led by influential TV commentators like Lou Dobbs is beginning to swing back to protectionism. Free trade now is associated with craven corporate disregard for U.S. job security, foreign labor rights and environmental protection. It is looked upon as a brutal, heartless method to eliminate jobs here in the U.S.

Perhaps these concerns are misguided. But they are real to the computer programmer whose job has flown overseas to China, or the customer relations specialist whose task now is being taken over by an Indian girl in Bangalore. I believe that free trade agreements like NAFTA are dead in the water. Any new free trade agreements like the ones involving nations in South America will pass muster reluctantly only after heavy arm twisting by the Bush Administration and heavy opposition from most Democrats and a greater number of Republicans who have read the election returns. The new Vietnamese free trade agreement (see next item) will be a test of President Bush's determination to forge new economic alliances. I do not see any real, immediate slowdown of U.S. world trade due to increased protectionism. Any diminution of ocean and air transportation will be more a product of a softer world economy, particularly in Asia, rather than any legislation passed in Congress. But the rah, rah, almost knee-jerk support for free trade is gone with the wind.Back to Top

U.S. Airways-Delta Merger; It Just Won't Happen

A few weeks ago, a bombshell exploded when it was announced that U.S. Airways, itself not too far removed from bankruptcy, had made a hostile bid of $8.7 billion to acquire bankrupt Delta Airlines. Immediately, the financial, business and aviation trade press began speculating about this projected acquisition. Everything was on the table; from aircraft equipment changes to what uniforms the flight attendants would wear. What was almost lost in these breathless discussions about the suggested merger was the fundamental question; "will it happen or is this a pipedream?"

My answer is a firm "pipedream." My principal reason. It would add an exponential level of complexity, or in plain English, would generate major glitches in running such a huge, combined airline. In my book, U.S. Airways President Doug Parker has too big eyes for too small a stomach. Just starting to list a few of the difficulties in merging a much larger airline into a smaller one makes one think Parker will roll snake eyes rather than a seven in his gamble. How will the two airlines' computer based reservations system be melded? Customers have been screaming about the difficulties in making reservations on the combined U.S. Air-America West reservations system which went into effect when the two airlines merged. Delta, of course, still is in bankruptcy and its creditors must give approval of any merger. Try getting approval from dozens of major and minor creditors unless ironclad guarantees are made to repay Delta's debts. And what about the unions, particularly the powerful pilot's union, who have been so badly burned in past airline mergers and are understandably wary of any future ones?

Let's for the moment forget the broad implications of this proposed acquisition and concentrate on what it would mean to us--freight forwarders. What would happen if against all odds, the merger is consummated? From experience, I can say with confidence that just like in every other airline merger, overlapping flights will be eliminated, aircraft will be grounded, staffs will be reduced and overall cargo service quickly and forever will head south. Although U.S. Airways is a neglible factor in freight, Delta is another story indeed. The airline, with its 400 aircraft, has a route structure that covers the U.S. like a blanket in addition to dozens of international flights. What will happen to that lift capacity if a merger occurs and Parker and his minions begin "rationalizing" the size of their fleet. It won't get bigger, for sure. Freight forwarders not only could expect less lift for cargo, we also can anticipate a drastic lowering of service standards when the two airlines' personnel are reduced and an attempt is made to integrate two completely different computer systems.

My firm belief is that a U.S. Airways-Delta merger would be harmful to the air freight industry. Fortunately, the odds against it are huge.

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GM Sells More Buicks In China Than In The U.S.

Sometimes, a statistic reveals more than just a set of numbers. It reflects a change in society, how we live and work. The fact that the Chinese really would rather have a Buick tells volumes about the changes in their society, and perhaps our's. It sounds incredible, but in the first ten months of 2006, more Buick automobiles have been sold in China than in the U.S. 241,632 sold in China; 206,589 sold in the U.S. Buick, whose staid image in the U.S. results in less sales each year, is a hot seller in China.

Perhaps the Chinese see something in Buick that Americans don't. The Chinese respect history. Sun Yat-sen, the "father" of modern China, drove a Buick as did the last Emperor. Before the communist revolution, almost every doctor and lawyer in China were behind the wheels of a Buick. What makes this statistic so relevant, and fascinating, is that so many Chinese now can afford a Buick car. Not too long ago, most Chinese were riding bicycles. The desire to own and be able to purchase an expensive car like a Buick tells us more than a raft of economic statistics. Much of China is becoming a relatively affluent, consumer society. More U.S. manufacturers should wake up to this fact. We should make even greater efforts to promote and sell our products in this almost 2 billion-strong market. The air freight business would be in a far better position if the current trade imbalance between the two nations were tilted more to exports.

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Julian Keeling