June 2008 Newsletter
If High Fuel Prices Don’t Cripple Air Freight, Over Zealous Security Will
CNS annual meetings are primarily gabfests with lots of
schmoozing, networking and worrying if you can compete
against other golfers when it's tee-off time. This
year's meeting, held a few months ago in Palm Beach, was
different. Different because a Transport Security Agency
(TSA) team was on hand to deliver cold, hard facts about
air freight security, in addition to the usual speakers
heating the conference hall with massive volumes of hot
air.
The message from TSA was grim. Following a Congressional
mandate, the first phase of industry compliance must be
met at a 50 per cent level by early 2009 with the final
100 per cent level of compliance to be attained in
August of the following year. What the security people
did not tell the audience was, who is going to pay for
the huge extra costs. Just the scanning equipment which
is estimated to cost from $35,000 per instrument to $1.2
million will cost a small fortune! It's not enough that
our industry has to grapple with sky-high fuel costs, a
slowdown in the world economy, overcapacity on many
routes and a sharp decline in volume. We now have to
face totally unrealistic security measures which if
implemented, could drive medium and small freight
forwarders out of business and destroy what little
profitability exists for those who remain.
"It's not enough
that our industry has
to grapple with sky high fuel costs, a
slowdown in the world economy, overcapacity
on many routes and a sharp decline in
volume. We now have to face totally
unrealistic security measures which if
implemented, could drive medium and
small forwarders out of business..."
The attitude of the TSA reminds me of the famous, or
infamous, statement by a U.S. army captain who, during
the Vietnamese war, said, "we have to wipe out the
village to save it." Must we wipe out an industry vital
to the global economy to attain an unrealistic level of
100 per cent security? The 450 CNS attendees, to their
credit, rose up as one man to tell the TSA, in effect,
to drop dead.
"We're mad as hell and we won't take it anymore," summed
up their right-on attitude. Hopefully, the CNS meeting
will serve as a catalyst for our industry in telling our
Congressmen and women that while their goals of 100 per
cent security in meeting threats from overseas are
admirable, their "solutions" are totally unrealistic. If
these rules go into effect next year, they could cripple
and even destroy our industry. The government would have
won a pyrrhic victory.
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Connie Kalitta's Dream World Shatters When Forwarders Say No
 Connie Kalitta is a grizzled veteran of the air freight
wars. For the past forty years, this ex-racing car driver has
been part of this crazy business from up in Ypsilanti, Michigan.
By this time, one would think Connie would have a pretty firm
idea of what is successful in air freight and what isn't. After
four decades in air freight, he should know what makes his
primary customers--forwarders--tick. Yet he seems to have
forgotten the basic creed of the forwarder--never make
commitments you can't keep, especially if it involves hard cash.
Kalitta proposed starting a domestic freighter operation
primarily to replace the defunct, all-cargo Kitty Hawk Airlines.
With one critical difference than Kitty Hawk, however. Kalitta
wanted firm, up-front commitments in hard cash from forwarders
who would book on his airline. Not only did Kalitta want hard
currency up front, his proposed rates actually were higher than
Kitty Hawk's.
This in the face of an economic recession and a severe drop in
domestic air cargo volume. Forwarders said no thanks. In the
past, a number of other cargo airlines attempted the same
gambit. All failed. If there is one lesson to be relearned from
the Kalitta fiasco--forwarders are tight with their cash, as
they should be in today's environment.
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New Personnel To Handle Increased Business
While negative conditions continue to buffet the industry, CII
moves right along in expanding our company and adding to
services. After fifteen years of continuous growth, we have made
a number of adjustments to strengthen our business model. The
result is the appointment of key executives to fill our
expanding role in air freight. Both I, Julian Keeling, and Peter
Lamy remain CEO and President respectively.
Graham Burford has joined CII as Vice President, Global Sales. A
ten year veteran of the industry, Graham comes to us directly
from Australia where he was sales manager for a large local
forwarder. As Australia accounts for more than 75 per cent of
CII's total sales, Graham's wealth of experience with this
market truly strengthens our ability to grow serving "down
under."
Tony Feist has been appointed Director of Special Projects.
Tony's role is to look after shipments that are not part of our
consolidation service. Through his expertise, CII rapidly is
becoming the forwarder of choice for spares/raw materials for
the remaining U.S.-owned tuna fishing fleet and factories based
in the South Pacific and the Pacific rim of Asia. Tony is
"ambidextrous," being equally at home with ocean or air freight.
He already has been responsible for some very intricate moves of
off-project shipments into Russia, American Samoa and the
African continent.
Brazilian-born Fabiano Ferreira comes to CII directly from hotel
management. Who is better to take control of our customer
operations than a person who has spent years in front office
management of major hotels throughout North & South America?
Fabiano has taken this change from the hospitality industry to
forwarding like a "duck to water." He claims there are many
similarities on how the customer should be looked after.
Multi-lingual and widely traveled, he brings a refreshing
approach to how best CII can continue to grow all the while
maintaining and improving customer service.
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Bruce McCaffrey; Fall Guy For The DOJ Price Fixing Investigation
 Bruce McCaffrey, late of
Qantas Airlines, may have had the title of VP Americas,
but he was treated as middle management and took orders
from headquarters in Sydney, Australia. The man survived
about fifteen bosses in almost as many years. It is to
his credit that he stuck to the job he was employed to
do as most in his situation would have vanished into
that great hangar in the sky. He worked diligently for
his employer for twenty seven years, always being one of
the first to arrive at the office and the last to leave
each day. During the nineteen nineties, when rates were
declining rapidly, the one thing Bruce did was to
control rates. Bruce held his pricing as best he could
to maintain full loads on his aircraft. Qantas' rates
due to him always were the benchmark from which the
airline's competitors discounted their rates to attract
business.
"Qantas' rates due
to him always were the benchmark
from which the airline's competitors discounted their
rates to attract business."
"While hanging out Bruce to dry for taking the rap,
at the same time Dixon almost orchestrated a
debt-ridden private equity buyout of the airline
which would have personally netted him tens of
millions of dollars."
With this as a background, it is nothing short of
disgusting how this man has been thrown to the wolves by
Geoff Dixon, CEO at Qantas. His Australian colleagues
can sit in their armchairs swaggering on "tubes" of
Fosters with total immunity, smiling that he has taken
the rap for decisions they were responsible in making.
Bruce suffered a severe stroke in the nineties and still
has mild paralysis. He had few interests outside of the
job and few friends inside or outside the industry. A
couple of Dale Carnegie courses would not have been
amiss for the man. Bruce unceremoniously was dismissed
from Qantas last year, with Dixon declaring that Qantas
would not pay for his defense. Bruce did not have the
resources to fight the battle against the unlimited
millions of the DOJ and thus had to face the music.
Industry respect for CEO Dixon must be at a low ebb.
While hanging out Bruce to dry for taking the rap, at
the same time Dixon almost orchestrated a debt-ridden
private equity buyout of the airline which would have
personally netted him tens of millions of dollars. For
my money, Dixon deserves the contempt of the entire
industry. Qantas' reputation also has taken a huge hit.
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Airlines Can Take Lessons From The Cruise Industry
 Recently, I attended a bon voyage party in Long Beach for friends
who were sailing on a 10-day cruise to the Mexican Riviera.
Driving back from Long Beach to Los Angeles after the party, I
began thinking about the cruise business and how fundamentally
its psychology is different from the airlines. Both share a
striking similarity, of course. They both use enormous amounts
of fuel, jet and bunker, to power their airplanes and ships.
Despite the fact that both industries cannot exist without
burning huge amounts of fuel, one business faces increasing
consolidation and bankruptcy while the other is enjoying--if not
record profits, solid earnings. Shares of the airlines are at
depression levels while cruise shares at holding their own with
a number of companies even paying dividends!
Why the difference? Airlines have dug themselves into profitless
holes by stressing price to the exclusion of all else, failing
in customer service and lumping themselves together as
commodities with almost no brand loyalty except mileage
programs. Cruise lines are moving in completely opposite
directions. Instead of retiring aircraft, they are building more
ships. The industry is focusing more on customer service
(despite necessary fuel surcharges), innovative product that
differentiates between each line, and new and exotic ports to
satisfy the differing needs of their customers. As cruise lines
seek to expand and improve their product, airlines are moving in
the opposite direction, literally shrinking their seats to jam
more passengers into their aircraft.
"The airline
industry has absolutely no vision
for the future except to consolidate and charge
higher fares on less flights. In contrast, cruise
lines are focusing on brand identity, product
innovation and an expanding base of passengers."
The airline industry has absolutely no vision for the future
except to consolidate and charge higher fares on less flights.
In contrast, cruise lines are focusing on brand identity,
product innovation and an expanding base of passengers. Airline
management would do well to study the actions, and perhaps more
importantly, the positive attitude of their sea-going cousins.
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The World Can Thank The "Cowboys" We Call Commodity Traders
Speculators and traders in the pits of the Chicago Board of Trade
and at the New York Mercantile Exchangeare largely responsible
for the huge rise in oil and other commodity prices. Prices
today have nothing to do with supply. Oil is gushing out of the
ground the same way it has for the past hundred years. Gasoline
consumption in the U.S. actually is going down, spurred on the
huge rise in prices at the pump and a slowing economy. Today,
"big oil" is an oligopoly. Combine total control of the market
with the actions in the pits by the "cowboys" in their stupidly
colored dust coats and you have a perfect recipe for a world
ripped off by its most important commodity.
What will happen when the pendulum swings the other way and
prices spectacularly fall? Just as with Bear Stearns, the
government will bail out the losers. Whatever happens, the you's
and me's will be paying the price for a bunch of crooks who at
the end of the day are making veritable fortunes with virtually
no risk.
"Isn't it ridiculous that
airlines, trucking
companies and other industries dependent
upon fuel oil and who directly and indirectly
employ millions of Americans are staring
bankruptcy in the face with no chance of
government intervention and help? While
at the same time, oil companies continue to
receive tax breaks in the $billions..."
Isn't it ridiculous that airlines, trucking companies and other
industries dependent upon fuel oil and who directly and
indirectly employ millions of Americans are staring bankruptcy
in the face with no chance of government intervention and help?
While at the same time, oil companies continue to receive tax
breaks in the $billions and speculators and traders rest
comfortably with their ill-gotten gains? They know that no
matter what, Uncle Sam will come to their rescue should the
artificial markets they have created, collapse.
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Julian
Keeling
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