July 2006 Newsletter

Let’s Play Down Volume; Play Up Profits

Last month, I spoke at the annual Trans-Pacific Air Cargo Conference held in Los Angeles. My message was simple; let’s play down volume and play up profits. What I called “profitless prosperity” in the U.S.-Asian air freight market will endure unless two conditions are met. We must (a) increase our rates and (b) generate more two way traffic to balance the current predominantly eastbound traffic.

'"profitless prosperity' in the U.S.-Asian air freight market will endure unless two conditions are met. We must (a) increase our rates and (b) generate more two way traffic to balance the current predominantly eastbound traffic."

I urged the audience of forwarders, shippers, airline executives and consultants to “bite the bullet” and raise rates. We offer a premium service and should charge premium prices. I likened air cargo to the “timid giant” in children’s stories who doesn’t know his own strength. I stated in the most forceful terms that the disgraceful policy by the airlines of charging little or nothing for carriage across the Pacific and making money only on security fees and fuel surcharges must stop.

Moving cargo by air has become an essential ingredient in the logistics policies of thousands of companies, as I reminded the audience. We provide a service that to many shippers means the difference between profit and loss, increased or lessened market share or even acceptance or rejection of a company product. We should charge rates commensurate with the enormous value of our services.

The sponsors of the Conference also asked me to discuss future opportunities in Asian air freight “beyond China.” I stressed the importance of India becoming a significant second to China as a generator of air cargo volume in the years ahead. I believe India will advance rapidly as that nation is the largest democracy in the world. Democracy always will trump dictatorship, I declared. I pointed to the airline industry in India. Under state sponsorship, there were only two airlines serving the vast subcontinent. Both lost money. Today, there are nine privately owned carriers with most making money and providing excellent passenger and cargo services.

While India has a great potential as a fountainhead of air freight, it is not without serious problems. Corruption remains rife, inland transportation is in shambles with only the railroads as dependable carriers of goods (interestingly, they were built more than a hundred years ago by the British to ferry troops around that vast nation) and private equity is scarce.

I concluded my remarks by urging the audience to look “beyond Asia” to other parts of the world as potential opportunities for air cargo. I particularly pointed to eastern Europe where capitalism still remains in the formative stage and rate of growth is far greater than at our traditional European partners like France, Germany, the U.K., etc.

"I stressed the importance of India becoming a significant second to China as a generator of air cargo volume in the years ahead. I believe India will advance rapidly as that nation is the largest democracy in the world. Democracy always will trump dictatorship"

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Con-Way Shuts Down Forwarding Operation; Emery Name Disappears Forever

The big LTL trucking company, Con-Way, has shut down its domestic forwarding operation, which it purchased in 1989 for $230 million. Not only did Con-Way take a huge loss on the transaction, it wrote finis to one of the most historic names in air cargo, Emery Air Freight. To younger members of our business, Emery barely exists in their consciousness. But to veterans in our industry, Emery was the dominant company in air freight for more than 30 years.

It was John Emery, Sr., who after World War II, started Emery Air Freight and the modern air cargo industry was born. A naval supply officer during the war, Emery believed that companies would pay, and pay well, for rapid, dependable delivery of “must get through” shipments. He was proven correct and Emery quickly became one of the fastest growing companies in U.S. industry. It was part of the “nifty fifty” group of corporations on the New York Stock Exchange whose growth was considered unlimited. Because of Emery’s success, other companies entered the air freight game like Airborne and Burlington Northern Air Freight. A new industry became part of the transportation landscape.

Alas, nothing lasts forever. Emery became a pawn in big company juggling of acquisitions and de-acquisitions. And if truth be told, John Emery’s successors were less than brilliant in running the company. But we will miss the name, which at one time was synonymous with the phrase, “air freight.”

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Interstate Highway System Celebrates 50 Years

Fifty years ago, in June, 1956, President Dwight D. Eisenhower signed the Federal-Aid Highway Act—the law creating the nation’s Interstate Highway system. This law which eventually resulted in the construction of 46,000 miles of interstate highways, changed the face of the United States and prompted a revolution in the way Americans live and work. The highway system, stretching from the East and West coasts and from the Canadian to the Mexican borders, connected manufacturing centers, sea and airports, urban and suburban markets. It transformed the trucking industry and to a lesser extent the air freight business.

Before the network of expressways, freeways and parkways was constructed, most of America was connected by narrow, two lane highways like the famous Route 66. Traveling by car or truck was slow and cumbersome. The trucking industry then was dominated on both management and labor sides by ‘dese, ‘dem and ‘dose guys who were far more comfortable brawling in a bar than looking at a balance sheet. To deliver freight by truck between two cities just a few hundred miles apart took a week.

Air freight initially benefited by the maze of new highways. About 90 per cent of an air freight’s shipment time is spent on the ground. Faster ground transportation meant more rapid delivery of “air” cargo.

Companies like Forward Air, Landair and Towne sprung up to deliver cargo by truck between airports. As technology became more advanced, truckers began scheduling their routes with greater precision and efficiency. Trucking, which traditionally had been a business dominated by small, family owned trucking companies or individual owner-drivers, began to coalesce into larger units.

Today, our big, beautiful highways crisscrossing the nation, combined with modern technology, has made the trucking industry into a powerful competitor to domestic air freight. Whereas fifty years ago, a truck would take a week to deliver shipments to a city in the same state, today it can move freight across the U.S. continent in even less time. Little wonder that domestic air cargo volume is declining while LTL truck deliveries are going through the roof. The law of unintended consequences has again come into play. Who would have thought when the Highway Act was signed by President Eisenhower fifty years ago, that it would have such an impact on the air cargo industry half a century later?

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Julian Keeling