February 2008 Newsletter
No Recession At CII
Despite all the talk about a recession, Consolidators
International is moving ahead with additional people and
increased funding to institute significant improvements
in our operation. We believe these changes will make CII
a stronger and more focused company. The changes will
allow CII to improve our systems and processes, offering
greater response to our our customers’ needs. We will
discuss CII’s operational improvements in greater detail
in next month’s Newsletter. I would like, however, to
now summarize the changes we are instituting not only at
our LAX headquarters, but throughout CII’s domestic and
international network.
* Upgraded e-mail/fax status reports
* Additional customer service staff
* Strengthened operations in Atlanta/New York
* In-house IT department
* Automated booking facility
* In-house tracking and tracing through our web-based
computer system
A few key services will not change. Real voices will
continue to answer our telephones and our stress on
personal service never will waver.
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Rumors Flying That FedEx Will Acquire U.S. Operation of DHL
 As this Newsletter goes to press, rumors are flying that
FedEx is negotiating with Deutsche Post to acquire its U.S
subsidiary; DHL. The best thing that could happen to Deutsche
Post is to rid itself of this humongous money loser. If the
talks fail, DHL should abandon the U.S. market. Ever since
Deutsche Post bought Airborne Express about four years ago and
folded it into DHL, results have been disastrous.
Aggregate losses in the U.S. market have topped the $1 billion
mark and Deutsche Post recently wrote down its investment by
about $850 million. The stock of ABX Air, the successor to
Airborne and the principal carrier for DHL, has dropped from
more than $8 per share to less than $3. Try as it may with TV ad
blitzes, print advertising and local promotions, DHL never has
been able to capture more than 6 per cent of the U.S. express
market.
"Try as it may with TV ad blitzes, print advertising and
local promotions, DHL never has been able to capture
more than 6 per cent of the U.S. express market."
DHL made the classic corporate mistake of believing what is
successful in one market will be successful in another. As a
worldwide express service, DHL undeniably is a powerhouse. But
it is a powerhouse in moving express cargo from country to
country where high rates can be charged. In the intra-U.S
market, with FedEx and UPS setting the rates, DHL is caught in a
no-profit trap. Little wonder that the finance chief at the
company does not believe DHL will make a profit in 2009, let
alone this year.
No management likes to think it has blundered. But DHL
misunderstood the market from the moment they entered it. DHL
was reliving the past when U.S. express volume was climbing in
double digits. Instead of an ever-expanding pie, however, the
current market is a mature, static one with FedEx and UPS
focusing not on growing their domestic revenues but in keeping
the business they already have.
A growing number of Wall Street analysts and cargo consultants
now agree. Either merge, DHL, or cut your losses and get out of
the U.S. market before you lose your leiderhosen.
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Exports Booming To Australia
 In the middle of January, Qantas advised the forwarding community
that because of the heavy volume of freight destined for Australia,
a backlog of 48 tonnes had accumulated in their Los Angles cargo
terminal. Backlogs in January, the quietest shipping month of the
year, are simply unheard of. Heavy cargo loads in January portend
excellent volume for the remainder of 2008 to “down under.” Airline
pricing is governed by one operative word; capacity. Too much
available capacity and rates are low; tight capacity brings high
prices. The year is hardly one month old and already Qantas and Air
New Zealand have announced rate increases. Other airlines
undoubtedly will follow suit and raise their rates as well.
"The year is hardly one month old and
already Qantas and Air New Zealand have
announced rate increases. Other airlines
undoubtedly will follow suit and raise their
rates as well."
The declining value of the dollar is finding new buyers for American
goods. But there is a joker in the deck. Note I said American goods,
not American-made goods. Much of the outbound freight being
generated is in the form of re-exports. A mini-boom also is
occurring with ocean freight. Apart from a jump in now cheap
agricultural products, the two commodities experiencing huge export
growth still remain traditional U.S. exports; scrap metal and waste
paper! We want to assure our customers that CII has secured
additional space on the carriers serving the South Pacific and we
feel confident that our company can handle shippers’ increased
requirements.
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China Freezes New Airlines
 While the South Pacific cargo market is strong, all is not well
in other regions of the world. In China, government bureaucrats
are making more sense than free market advocates. The recent
decision by Li Jiaxiang, who is head of the China Civil Aviation
Authority, to freeze new airline applications for that nation is
a very practical decision. Overcapacity on many air routes in
China now is the rule rather than the exception. Fully 39
applications for new air carriers, of which about 18 came from
all-cargo airlines, were received. Obviously, if the free market
were to prevail, there would be chaos over China’s skies.
Contrast this realistic approach by China to the European
Economic Commission allowing “freedom of the skies” between
Europe and the U.S. to begin in March. The new ruling allows
airlines to fly from non-home country cities in Europe to
destinations in the U.S. BA, for example, could fly between
Paris and New York; Air France between London and Chicago.
While this nod to “open skies” was applauded by free marketers
on both sides of the Atlantic, little thought is being given to
the very real problem of overcapacity when these new rules take
effect. I don’t much care about passenger overcapacity. My
business is freight. I foresee a substantial jump in cargo
capacity once these wide-bodied aircraft with 100,000 lbs. of
cargo belly space take to the skies across the Atlantic. What
will this added capacity do to rates, now in the cellar because
too many airplanes are chasing too little cargo? Currently, some
20 million pounds of cargo capacity are available each week
between the Continent and the U.S. Do we really need more
capacity? I don’t think so.
"What will this added capacity do to rates,
now in the cellar because too many airplanes
are chasing too little cargo?"
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Sir Edmund Hillary—Conqueror Of Everest—R.I.P.
 As a New Zealander born
and bred, I read with mixed emotions of the passing away
last month of Sir Emund Hillary at the age of 88. Sad
this remarkable person had died, but exhilarated that a
New Zealander had been the first to achieve a goal which
had eluded so many before him. Sir Edmund, of course,
was the first man to stand atop the highest peak in the
world—Mt. Everest. He achieved this amazing feat
together with his Sherpa guide, Tenzing Norgay, in 1953
after many before him had tried to climb to the top of
the world and failed. Sir Edmund was not just another
mountain climber, however.
He was a deeply driven man who used his fame not to make
millions in acting as a spokesman for advertising or
linking his name to dubious promotions, but to help
others—particularly the nation of Nepal, site of Mt.
Everest. Under his sponsorship, millions of dollars were
raised to help modernize a country that baredly had
advanced beyond the stone age when Sir Edmund made his
historic climb. Schools, hospitals and roads were built
in Nepal under the guidance and financial support of Sir
Edmund. Contrast this with today’s “me” generation who
live only for pleasure and indulgence. Sir Edmund
Hillary will be missed not only by the citizens of New
Zealand but everyone throughout the world who applauds a
unique life.
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Lufthansa Weighs In With A Very Cautious Forecast
 Unlike its sister Germany company, Deutsche Post which lives in an
air freight dream world, Lufthansa is very much the realist
where cargo is concerned. Recent remarks by the head of
Lufthansa Cargo, Andreas Otto, re-enforces my own mixed views of
the air cargo market. Noting that Lufthansa is generating only
about 50 cents per kilo on a number of its cargo routes, a
historic low, Otto ticked off some of his tempered beliefs.
He believes that while international air freight will grow at
about a 5 per cent pace, capacity will overshadow this growth at
more than 6 per cent. With capacity outstripping volume, no less
than 50 freighters currently are redundant in the European
market, in his view. He also believes operating twenty five-year
old Boeing 747-200s with their gas guzzling appetites is
“ruinous.” Of course, for many of the all-cargo carriers who
have jumped into the business, the 200 series is their mainstay.
"... while international air freight will grow at
about a 5 per cent pace, capacity will overshadow
this growth at more than 6 per cent. With capacity outstripping
volume, no less than 50 freighters
currently are redundant in the European market..."
Otto is not particularly optimistic about the China market,
considered the air freight “saviour” by many supposed air cargo
experts. Lufthansa finds the rapid growth of the China market is
slackening to about 7 per cent per year, down from double digit
growth of the past few years. Even more ominously, the trade
imbalance between China and the rest of the world is growing,
not shrinking, despite the weakening dollar. He calls the China
market “stagnating” and that all of Asia is demonstrating slower
growth. Lufthansa is reacting to this slowdown by scheduling
more freighters away from China and into the U.S. The airline
also has established a new hub in of all places—Mexico.
Of all the combination carriers, Lufthansa perhaps is the most
level headed relating to cargo. The airline has been a leader in
moving freight for the past generation and its voice must be
listened to with respect.
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Politics May Trump Trade
Sir Isaac Newton first said it 400 years ago. For every action,
there is an equal and opposite reaction. Sir Isaac’s discovery
not only applies to physics, it applies to international trade
as well. The past few years has witnessed an explosion in
international commerce. If current trends continue, almost 25
per cent of U.S. GDP will be generated by trade-related
activity.
But will it? An opposite reaction may occur, as there is plenty
of reasons for skepticism. Once a murmur decrying the loss of
U.S. jobs for overseas and the weakening of our industrial
might, is turning into a roar. Candidates in both political
parties’ primaries increasingly are highlighting the loss of
jobs and manufacturing capacity as the single most important
issue facing the U.S. Romney’s win in Michigan last month was
just the start of a drive by all the candidates to stress the
loss of jobs issue. Fueled also by popular TV commentator Lou
Dobbs, the outsourcing of U.S. jobs has thrust itself into the
forefront of the U.S. electorate. U.S. exporters have been aided
to a minor extent by the decline in the dollar but the trade
deficit with China still is running at about $23 billion per
month.
We can’t expect any help from the highly touted multlateral and
bilateral trade negotiations. All hope that the World Trade
Organization’s round of multilateral talks would be completed in
2008— opening new markets for U.S. manufactured goods, has been
abandoned.
"For both Democrats and Republicans,
free trade will be made the scapegoat for
every economic ill facing the nation."
Widespread opposition to any furthering of free trade is growing
among both political parties and their leading candidates.
So-called Presidential “fast track” authority has run out with
no one expecting it to be revived whomever wins the next
election. Opponents of free trade—which has become a code word
for globalization—will continue to prevail both in the media and
the U.S. Congress.
For both Democrats and Republicans, free trade will be made the
scapegoat for every economic ill facing the nation. The glory
days of Tom Friedman, once the most influential proponent of
free trade through his books and New York Times’ column, have
long since vanished.
How will damage to the unfettered movement of goods and services
between nations affect the transportation business? Initially,
not too much effect as there will be more talk than action.
Americans like the bargains offered at the Wal-Marts of our
nation based on low priced imports. They are not likely to give
them up. In the longer term, however, Congress may well pass
laws that will undercut U.S. trade, with new rules and
regulations that would restrict international commerce. I
believe the next few years will be a watershed in U.S. trade
relations with the rest of the world.
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Julian
Keeling
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