February 2007 Newsletter
How Unintended Consequences Have Reshaped Transportation
What a difference thirty-odd
years make! That difference has generated a host of
unintended consequences ruling transportation today. Let's
examine what changes have been made in ocean, trucking and
air freight, never dreamed of three decades ago.
 Back in the seventies, steamship lines were literally in a
war zone in many countries. Longshoremen and seamen fought
to resist this new fangled method of loading and unloading
ships; containerization. To accept containerization, they
wanted their pay packets adjusted upwards. The shipping
lines fought back and resulting stoppages wreaked havoc with
shipping schedules and many countries like Australia lost
tens of millions of dollars because they could not deliver
promised freight. Many trade routes still were dominated by
British, American and European shipping lines. Many of these
lines were forced out of business in the ensuing years as
these relatively high cost companies were replaced by
shipping lines using flags of convenience and cheap Asian
labor. These lines thrived and took huge market shares.
Shipping, with the exception of Japan, became a mode of
transport from which first world countries essentially
withdrew. Old line companies allowed shipping firms
headquartered in Asia including Taiwan, Korea, Malaysia and
Singapore, to take control of the world's sea lanes. As
containerization revolutionized shipping, rates went into a
free fall. Service began to match these low rates.
 Trucking thirty years ago was hardly a time definite
business. It would take a week for delivery between two
cities only a few hundred miles apart. Trucking in the
seventies hadn't changed much from trucking before World War
II. Equipment had improved, but management didn't. The same
mentality prevailed. Technology, what's that? It was an
accepted fact that the best managers were those who rose
through the ranks; who started as truck drivers. College
MBAs on their way to Wall Street, didn't even know that
trucking existed.
Railroads traditionally had moved bulk freight and because
of management rigidity, lost huge chunks of business to
truckers in the seventies. Railroad executives were even
more backward looking than truckers. After all, hadn't they
created the Industrial Revolution in
 America? They saw no
reason to change. Thus, they never kept pace with the huge
changes in post war industry. They lost out to trucking in
moving high value and lesser size goods. Pilferage and
damage was common on the railroads and contributed to losing
market share to the truckers.
Air freight, thanks to widebodied jets, underwent massive
changes in the seventies. Airlines computerized their
passenger reservations systems and cargo became part of that
automation. Air freight allowed JIT to become an everyday
event for manufacturers, with outsourcing becoming a factor
in worldwide production for the first time. Makers of all
kinds of equipment, but particularly main frame computer
manufacturers, saw their businesses grow exponentially as
they could deliver their highly valuable products 100 per
cent intact and on time. Freight rates were three times
higher (allowing for inflation) than they are today. No one
questioned air cargo rates because shipments were delivered
on time and in good condition. Older passenger 747s could
not be converted quickly enough to keep pace with demand.
Even low value merchandise flew instead of traveling by
ocean or highway because of air freight's speed and
reliability to market.
 Fast forward to 2007. What is the transportation picture
today? Air freight, instead of being the wonder boy of
transportation, is on the bottom rung of the ladder.
Excluding the technology of FedEx and UPS, carriers have
done nothing to improve handling or update their legacy
computer systems of the seventies. Staff members at the
airlines either have been slashed or eliminated entirely
leaving gaping holes in cargo service. Outsourcing has
become the primary evil in lowering costs. Cargo warehouses
look identical to what they were when the ULD-3 was
introduced forty years ago. Shipments that are split or not
moving when booked, claims for damage, freight disappearing
completely--are more rife today than when John C. Emery, Sr.
created the modern air freight business back in 1947.
Today, railroads are so technology based, they know where
every freight car is located at any given moment. They now
offer such a highly accurate time definite service, truckers
are among their biggest customers as they piggy-back their
trailers on trains for medium and long haul runs.
Trucking, led by the surface divisions of FedEx and UPS, has
seen massive changes during the past fifteen years. Only
Yellow Trucking remains among the original Big Three who
used to dominate the trucking business. Smaller trucking
firms like Swift and Schneider have emerged in the past
fifteen years as major players. Many trucking companies now
are on the cutting edge of technology and provide first
class full load and LTL service to their millions of
customers.
Steamship lines also have entered time definite service.
Schedules now are formulated with a sophistication that once
belonged exclusively to the air freight business. Wharf
handling has improved vastly to keep up with the times as
the days of rape and pillage of ships in port has become a
thing of the past. With longshoremen making more than
$100,000 a year, why steal? Several steamship lines are in
the 3PL business with massive off-wharf facilities solely
established for warehousing and distribution.
In summary, transportation has witnessed a huge change since
the seventies. Even its vocabulary has changed; to
logistics. Ironically, the only industry that has not moved
with the times is the supposedly most advanced segment of
transportation--air freight and the airlines. Hopefully,
they will recapture the technical and service lead in the
years ahead.
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Is Bush Right For Once?
 Regular readers of our Newsletter are well aware that President
Bush is not one of my favorite people. But on one issue of
critical importance to our industry, he is right on the money.
When the newly elected House of Representatives convened last
month, the Democratic majority (aided by many Republicans)
wasted no time in passing a bill that could cripple
international air freight. The bill, which affected both ocean
and air cargo, would require very stringent screening of cargo
aboard passenger flights flying to U.S. destinations. Air
freight's most powerful advantage; speed would be largely
negated by this very restrictive piece of leglislation. The bill
also calls for the screening of all ocean going containers in
foreign ports before leaving for the U.S. The shipping industry
understandably also is up in arms and is attempting to combat
this legislation.
The House was in such a hurry to pass this bill, it actually
became the first piece of legislation (H.R. 1) to move through
the newly elected Lower Chamber. Did I say "move?" It actually
sailed through the House by a two thirds margin almost before
the Members took their seats. President Bush said he "strongly"
opposes the measure because of its crippling effect on U.S.
trade. He implied there was a veto pen lying on his desk for
this Act. Cooler heads are prevailing in the Senate so this
insidious bill may never become law. I'm glad the President is
making sense on at least one issue. Now, if he only would see
the light on Iraq. Let's hope our various air freight
associations, some of which are based in Washington, go up to
Capitol Hill and fight this Act with tooth and claw.
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CII's Domestic Business Continues To Grow
 It wasn't too long ago that CII's business was dominated almost
totally to the South Pacific. Last year, Peter Lamy and I made the
decision that we cannot rely on a one lane segment for the bulk of
our business. As China has become a low cost producer of junk as
well as sophisticated equipment like cell phones, so has industry
undergone a change in the U.S. I personally think China soon will
emulate Japan of the nineteen nineties as a high cost producer of
goods. Cheap manufacturing sites will move to countries like
Vietnam, Bangladesh and India. I believe that eventually we will see
a complete 180 degree turn and the States will re-emerge as an
industrial powerhouse.
Third world countries don't excite CII for many and varied reasons.
The U.S. domestic market still remains the largest single market in
the world. We believe it is ripe for plucking. Peter & I see a huge
need for personalized transportation service at competitive rates.
Already, our belief is being translated into reality. To this end,
we have aligned ourselves with a nationwide full load, LTL trucker
for surface transportation and have entered into domestic airline
contracts with United Air Lines and UPS. Our first major domestic
contract (a major specialist retailer) took effect shortly after the
Holidays. To date, our on time record is 100 per cent with shipments
arriving in perfect condition.
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Takeover Of Qantas Generates Firestorm Of Criticism
 An important element of our business still remains Australia. Any
developments concerning the airline picture "down under"
naturally arouses our interest. The pending takeover of Qantas
for almost $9 billion (U.S.) is generating a firestorm of
criticism in Australia. Ever since Qantas was founded as a tiny,
domestic carrier eighty seven years ago, the airline has enjoyed
iconic status in Australia as that nation's transportation
ambassador to the world. The airline with the kangaroo on its
tail is a familiar sight at airports in the U.S., Asia, Europe
and the Middle East.
Stoking the firest of resentment is the fact that foreign
investors (American and Canadian) will own 40 per cent of
Australia's flagship airline. Little wonder that the politicians
in Canberra, reflecting their constituencies, are investigating
the takeover. The deal still faces significant hurdles.
Government and regulatory approval will be necessary. Consent by
investors owning Qantas stock, who may be reluctant to part with
their shares for patriotic reasons, also is an obstacle.
If the deal goes through, we all know the melancholy results.
The airline will be so leveraged with debt, cost cutting will be
the order of the day. Outsourcing of maintenance and personnel
will accelerate. Passenger service, in which management always
has taken such pride, will be reduced to handing out peanuts at
meal times. And the carrier's position as Australia's leading
airline, will be severely compromised.
Rival airlines like Virgin Blue and Singapore Airlines, who have
been angling for Australia-U.S. rights, now are saying, with
some justification, that Qantas no longer is the hallowed
carrier of Australia but just another airline with 40 per cent
owned by foreigners. Open international routes to more
competition, say these airlines. Will cargo operations at Qantas
change if and when new management assumes control? We fervently
hope not.
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New Computer System At CII
 Peter
and I are not proud of CII history when it comes to choice of
suppliers, particularly in the IT field. In our fourteen year
history, we are making the fifth change in our computer system. We
are devoutly hoping this will be the last change for many years to
come.
Next month there will be a little upheaval as we terminate the old
and bring on the new. We are referring to a web-based system that
will allow our computer department to provide real time tracking and
tracing as well as generating other state of the art features. Our
previous software company two years ago promised us every imaginable
bell & whistle. Like patient children, we waited and waited. And
like children, we were disappointed. It took us three months to
realize our supplier's promises were just impossible dreams. Ever
since computers took control of business, it has been the case of
software suppliers never quite delivering what they promise. It
doesn't matter what industry. Software suppliers are like the 3PLs,
promising much and delivering little.
This time around, Peter and I, because of our past poor decision
making, took a back seat to Jessica and Ronen. They took control of
the situation. They are adamant that system "number five" will
accomplish everything promised--and more! Peter still is
proclaiming, "seeing is believing." I echo some of Peter's
skepticism. We're hoping for the best, however.
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Julian
Keeling
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