March 2009 Newsletter
CII To Receive $400,000 Grant For Screening Equipment
We just have been informed by the Transport Security
Administration (TSA) that CII has received a grant of
$400,000 to purchase screening equipment for the
mandatory screening of 50 per cent of all passenger
aircraft cargo. We are proud and grateful that the TSA
has placed its confidence in our company to conduct
these vital security procedures. Four of CII’s staff
worked for almost two years in preparing a presentation
to the TSA. Their efforts were happily successful.
At this writing, CII will acquire at least two pieces of
screening equipment and possibly three. One of the
machines will be a massive structure, mounted on the
floor of our Los Angeles warehouse. It will be an X-Ray
machine and will be capable of X-Raying large wood skids
with a weight capacity on their rollers of 4,000 to
6,000 lbs. The second machine will be an Explosive Trace
Detection (ETD), handheld device that is rubbed on cargo
and picks up particles of known, “problematic”
compounds.
"We
urge our current and
potential customers to utilize
our screening facilities for
fast, efficient and thorough
screening of their
shipments."
Only a few very large forwarders now have this
equipment. We urge our current and potential customers
to utilize our screening facilities for fast, efficient
and thorough screening of their shipments. Once screened
at our facilities, cargo will be taken directly to the
carriers for loading aboard their aircraft. We accept
these new responsibilities with a great feeling of pride
that the TSA has placed in our hands a vital security
procedure. It is a tribute to our capabilities and
professionalism. The security of the United States is
paramount at CII.
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$800 Billion Stimulus; What Does It Mean To Air Freight?
Late last month, President Obama signed with great flourish the
$800 billion stimulus bill promising new jobs and economic
growth based on this legislation. Just what do all these
billions mean to the transportation business in general and air
freight in particular? From my perspective, not much. Two thirds
of the funds call for stimulating the economy by modernizing our
“infrastructure” through public works projects. One third will
go for a tax rebate which recipients may spend or save as they
wish. If past history is any guide, most taxpayers will not
spend the money but will use their lump sum refunds either to
replenish their bank accounts or pay off debts.
Building new roads, bridges, tunnels, hospitals and modernizing
old ones will take years. Just assembling plans for construction
of these projects and requesting bids will take at least a year.
Modernizing our infrastructure is an admirable goal but it is a
long term solution. Air freight needs help now! With an industry
down 20 per cent and more, with aircraft taking “vacations” in
the desert and jobs being lost, many of us do not have the
luxury of waiting for long term solutions. As famed economist
John Maynard Keynes once remarked, “in the long run, we are all
dead.” We need more help from American housewives than any
government bailout. The wild card is the economy.
All other issues like bailout money, environmental concerns take
a back seat. It is only Mr. & Mrs. American consumer, with her
open pocketbook and his open wallet who can lift air and ocean
freight out of our current doldrums. Giving the American
consumer the incentive to spend now and not tomorrow is far more
important than any bailouts received from Washington. I often
think the U.S. is tied too tightly to its own free market
ideology instead of using plain old fashioned common sense. Why
not give money directly to the American consumer rather than
indirectly through banks who may or may not extend credit.
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Free Trade Dead As A Dodo
Started in the Clinton Administration, free trade sprouted like
weeds in the 1990s and early 2000. First came the NAFTA
agreement between the U.S., Canada and Mexico. Then came CAFTA
involving nations of the Caribbean. Free trade advocates
believed these deals were only a start. Soon, all the major
trading nations would be busily signing each other up with trade
agreements. Now, reality has set in. Curent negotiations between
the U.S., Colombia, Panama and South Korea are going nowhere. It
belies the naive optimism of the free traders. There’s a little
thing called the Recession that has put a dead stop to these
negotiations. Now, protecting U.S. jobs is far more important
than lowering trade barriers even with friendly nations.
"The pendulum, at least for
the moment, definitely has
swung toward protectionism
and the saving of U.S. jobs.
No question about it; free
trade has taken a back seat."
My prediction; trade agreements on the order of NAFTA or CAFTA
are a dead issue in Washington. While our legislators have not
gone entirely protectionist, they are listening more closely to
manufacturers and their employees who have been hurt seriously
by free trade. The new bailout legislation lays out specific
conditions to “buy American.” The pendulum, at least for the
moment, definitely has swung toward protectionism and the saving
of U.S. jobs. No question about it; free trade has taken a back
seat.
A parallel development is the renewed interest in manufacturing
right here at home. Across the globe, low cost countries are
becoming high cost. Wage increases throughout all of Asia,
particularly in China, is blunting much of the workforce cost
advantage which was the principal reason in the first place for
moving manufacturing off-shore. The other key factor that may
bring industry back to the U.S. is the ever spiraling costs of
distribution in the total cost of a manufactured product. It
obviously is cheaper to drive a truck a few hundred miles from
factory to selling outlet than establishing a “supply chain”
stretching many thousands of miles.
"It
obviously is cheaper to
drive a truck a few hundred
miles from factory to selling
outlet than establishing a
“supply chain” stretching
many thousands of miles."
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Let’s Keep An Eye On Japan
The eyes of the air freight industry have concentrated
on China and mainland Asia for so long, we often forget
there is a chain of islands off this great continental
land mass. These islands make up the imperial nation of
Japan. The new Administration is not forgetting the
importance of Japan.
Secretary of State Hillary Clinton made Japan the first
stop on her recent tour of Asia. Japan was our most
important trading nation in Asia for many years until
the China overtook it. Today, it is our second most
important country for trade generating many billions in
imports and exports.
"Japan’s GDP declined by
almost 5 per cent in 2008, with
negative growth predicted for
the current year. Japan today
most resembles the nations
during the 1930s when their
economies collapsed."
Unfortunately, Japan today is a basket case. Its once
vaunted economic growth has shifted into reverse.
Japan’s GDP declined by almost 5 per cent in 2008, with
negative growth predicted for the current year. Japan
today most resembles the nations during the 1930s when
their economies collapsed. Her government is
ineffectual. Even the great exporting companies like
Toyota, Sony, Nissan are reporting sharp declines in
sales and profits. Shares on the Tokyo Stock Exchange
are trading at prices last seen thirty years ago. Air
freight volume has dropped about 25 per cent with once
proud flag carriers like JAL and ANA canceling cargo
flights and laying off staff—a once unimaginable action
by Japanese companies.
What lessons can be learned from the Japanese debacle?
The first and most important lesson; government aid
should be quick, dig directly at the roots of the
problem and enlist the approval and support of the
public. None of these lessons were learned in Japan. The
once mighty stature of Japan, Inc. has been reduced to
midget-sized. To the U.S. and the remainder of the
industrialized world, take heed.
"What lessons can be learned
from the Japanese debacle?
The first and most important
lesson; government aid
should be quick, dig directly
at the roots of the problem
and enlist the approval and
support of the public."
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Is Just-In-Time On Its Last Legs?
Ever since the 1980s when Japanese car makers introduced
the Just-In-Time concept, the J-IT system of
distribution has become the Holy Grail of logistics. It
has become almost a religion to its adherents with
countless articles and papers written by academic types
about the supposed advantages of this transportation
method.
They have claimed that keeping minimal inventory by
delivering parts and components to the assembly line at
the last minute was the difference between profit and
loss of a product. Their basic argument, the J-I-T
method was the key link in forging an unbreakable supply
chain. Proponents of J-I-T said that as long as shipper,
forwarder and carrier integrated their delivery systems,
the method would work wonders in reducing inventory
costs almost to zero with savings running into the
millions of dollars.
Unfortunately, one key variable in the J-IT process was
beyond the control of the 3PL and 4PL providers. That
variable was the economic health of the supplier. In
flush times, that was hardly a problem.
Today, however, it is not a question whether a supplier
has the manufacturing skills to make a part or component
of consistently high quality. The pertinent question is;
will the supplier, often undercapitalized, survive in
these harsh economic times to make the products
contractually agreed upon? In China alone, thousands of
suppliers have shuttered their doors and have declared
bankruptcy. These closures are generating panic among
U.S. traffic managers in companies ranging from cars to
toys. One of the largest toy makers, Mattel, has been
forced to switch dozens of its suppliers within the past
year with a negative effect on its balance sheet.
"The pertinent question is;
will the supplier, often
undercapitalized, survive in
these harsh economic times
to make the products
contractually agreed upon?"
Perhaps it is time to admit that Just-In-Time simply
isn’t right under today’s conditions. Perhaps it is time
to take a more back to basics approach when moving
freight. Perhaps it is time to prepare for stock outages
by accumulating inventory. Perhaps it is time to step
back to a simpler way of doing business. A new sense of
reality will make today’s distribution challenges more
soluble.
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Next Stop, Bangkok
I have packed my bags for
a trip to Bangkok. I have been invited to speak at
IATA’s annual cargo conference which will be held in
that city during the first week in March. In next
month’s Newsletter, I will report on the Conference and
my contribution to its theme, “Battle For Survival.”
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Julian
Keeling
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