May 2008 Newsletter
Record First Quarter
 What recession? CII has just completed a history making
first quarter. Volume was up and new customers are
moving to us in droves. Peter and I have been the
traditional front men for the company, but we cannot
claim any credit for CII’s achievement in 2008. Since
Aussie Graham Burfurd came on board nearly one year ago
as VP Global Sales, our business has moved into an
exponential growth mode. Late last year, we added
Brazilian-born Fabiano Ferreira to our Los Angeles
marketing operation and now we’re going like
gangbusters.
I would like to add that fifteen years of keeping to our
principles provides customers with a comfort zone when
dealing with us. We take pride that in Los Angeles, we
still are in the same offices (slightly bigger to handle
the growth in personnel from three to twenty five), at
the same address, with the same telephone and fax
numbers, and still with-long-standing staff members. Our
Atlanta and New York offices are producing record
numbers and also making a huge contribution to our
achievements.
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Tiny Pacific Air Cargo Pacific Has It Right
 Probably the smallest all-cargo carrier in America (a
daily 747 service LAX-HNL), Pacific Air Cargo is handling the
fuel surcharge in a manner that reflects its true cost. I
believe airlines throughout the world have left themselves wide
open to investigation by adopting the fuel cost as a weight cost
instead of, as in ocean freight, being a ratio of the freight
charge. It is crazy that the fuel surcharge should be the same
LAX-YCR as it is LAXPER. The distance to Perth is 10,000 miles
as opposed to 1,000 miles to Vancouver. Surely, the aircraft
would burn more fuel to Perth. Beti Ward, the owner of PAC,
should be commended for her common sense approach in applying
the fuel surcharge as a percentage of the freight rate.
Isn't it ludicrous that so-called freight guru, Ned Wallace, on
many occasions, moves LAX-HKG freight on his aircraft for the
FSC only? Ex JFK to most destinations, the FSC far exceeds the
rate charged. Furthermore, why is that the bulk of the FSC has
not been absorbed into the rating structure? Led by our
President, Mr. George Bush, everyday we are being told we can
only look forward to the price of a barrel of oil increasing.
"I believe airlines throughout
the world have left themselves
wide open to investigation
by adopting the fuel
cost as a weight cost instead
of, as in ocean freight, being
a ratio of the freight charge.
It is crazy that the fuel surcharge
should be the same.
LAX-YCR as it is LAX-PER."
Most American passenger carriers are teetering on the
edge of bankruptcy because they cannot keep pace in
adjusting their fare structures with the constant
increases in the cost of fuel. I always thought carriers
had smart backroom boys who were able to measure all the
costs and quickly recommend actions to senior management
for implementation. Where are they in cargo? Even mighty
UPS and FedEx can't even do the sensible thing and apply
base increases to absorb the major part of the growing
cost of jet fuel, let alone adopting the same method of
charging as Beti Ward and shipping lines.
In my opinion, airlines deserve to be fighting for their
lives. For such a capital and labor intensive industry
with huge running costs, they are truly gutless in the
way they avoid dealing with the fuel cost. However, they
have no problem paying peanuts to get their aircraft
maintenance carried out in China or laying off quality
staff from their operations so the customer receives a
deteriorating level of service.
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CII Gets Bigger In New Zealand
 In late March, I traveled to New Zealand to sign an agency
agreement with New Zealand's largest forwarding company,
Mondiale Freight Services, Ltd. No, we aren't making any changes
in our CII operation there, which is headed by my brother Rex
and niece Jenni. We already have a very successful and mature
business into Auckland. However, an opportunity to be closely
linked with the most successful freight forwarding company ever
in N.Z. history is simply a once in a lifetime opportunity.
One of our goals is to be the biggest cargo customer of Air NZ
and Air Tahiti Nui into Auckland. This means within a short
space of time we will be offering daily consolidations ex-LAX
together with beefing up our frequencies ex-ATL and JFK.
Mondiale's size, customer base and dedication to the U.S. route
will help us quickly achieve our goals.
Both Mondiale and CII-N.Z. will operate independently. In saying
that already, synergies are taking place that is raising the
level of service to the New Zealand forwarding community.
Brother Rex and Mondiale Director John Sargent are as excited
about our growth opportunities as we are up here.
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April 1st Big Day For CII
On April Fool's Day, I
signed a bulk space agreement with UPS making us their
largest forwarder customer to Australia. This is no
joke. The agreement calls for firm allocated space
twelve months of the year. Isn't that amazing? A $40
billion revenue per annum company with 400,000 employees
signing a deal with a $20 million operation and forty
staff? Talk about David and Goliath and what a
partnership! It is true the BSA agreement came at a
hugely increased cost. But we believe our Australia
destination customers will realize quickly if they
haven't already, that no-one else can match our
reliability into Australia. When the silly season
arrives, our customers will be in the box seat.
Australia accounts for seventy five per cent of our
revenues. Our forward (no pun intended) thinking in
making this move with UPS demonstrates the faith we have
in keeping to our niche market--the South Pacific.
"...we believe our
Australia
destination customers will
realize quickly if they haven't
already, that no-one else can
match our reliability into
Australia."
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Five Years And 200 Helicopters Later
 It is exactly five years since I received a call from a Russian
forwarder (who was recommended to us by a fellow Los Angeles
forwarder who felt he wasn't equipped to handle Russian
traffic, asking CII to move a couple of Bell Helicopters to
Moscow from Texas.
Of all the relationships I have made in business, this one is
the most outstanding. Much has been made of how business is
accomplished in former Soviet countries and I must admit the
first conversation I had with my Russian counterpart was one of
trepidation. However, I decided what the heck, it was such a
grand opportunity and why not give it a go?
To many, Russia is one of those countries where the risk factor
is too great in doing business. But if one asks about my
experience in dealing with our former arch enemy, I can only
claim my relationship with Misha's company is a highlight of my
being nearly forty years in the freight business.
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Roadblocks Arising For Airport To Airport Truckers
The split between domestic and international air freight couldn't
be more dramatic than the current situation of the airport to
airport truckers. One of the few success stories in the domestic
"air" freight market has been the airport to airport truckers
whose cargo never sees the inside of an airplane. Led by Forward
Air, who seventeen years ago turned the concept into a viable
business reality, trucking shipments between airports now
generate greater volume than flying the cargo. The goose,
however, has stopped laying its golden eggs. Last year's volume
for the air freight truckers declined for the first time in a
decade. Competition has heated up with a number of smaller
players exiting the business unable to overcome high fuel and
labor costs.
The three major players in airfreight trucking are Forward Air,
Towne Air Freight and BAX Global. All three are hurting due to
the double whammy of an economic slowdown and fuel costs that
seem to escalate forever. Forward Air's revenues last year
barely matched the year before while profits dropped
significantly. Regional truckers who attempt to compete with the
Big Three airport haulers are even in worse shape. Unlike the
national air freight truckers who have economies of scale, there
is insufficient volume to keep the smaller truckers rolling on a
consistent basis. They are giving up the ghost.
Airfreight trucking is hardly a small business, weighing in at
about $5 billion per year. It has shown consistent growth during
the past number of years as both forwarders and direct shippers
have looked for lower priced alternatives to domestic air
freight. The airlines have helped the truckers' cause by
downsizing their domestic jets to narrow bodies and smaller
regional size aircraft. 2008, however, will stop that growth
dead in its tracks. Here is another indication that domestic air
freight is hardly immune to an economic slowdown.
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Airlines Now Yielding To Laws Of The Jungle
 Thirty years ago, the CAB was heading into the sunset. A "free
market" dawned for the nation's airlines. Ideology triumphed
over experience and common sense. Under the once benign
supervision of the CAB, the two principal players in cargo,
airlines and forwarders, both made money. Forwarders' yields
were about five times in 1978 as compared to today. Airlines
also made money hand over fist with all-cargo aircraft criss-crossing
the U.S. nightly. So much for the many benefits in "freedom of
the skies."
These melancholy thoughts sprang to mind with the current spate
of airline shutdowns, bankruptcies and consolidations. What is
happening to our great domestic airline industry?
Within the space of a few days, Aloha Airlines, Challenge
Airlines and ATA stopped flying. Frontier Airlines filed for
bankruptcy. And the greatest upheaval of them all; American
Airlines canceled thousands of flights leaving passengers and
shippers in the lurch. Other airlines are considering removing
from service a number of their aircraft for FAA inspection which
will cause even more havoc. Who knows the outcome of the
Delta-Northwest merger (if the unions approve)?
Are these happenings the proverbial "canary in the coal mine?"
Do these shutdowns and bankruptcies suggest that maybe it's the
first sign of a disaster for the domestic airline industry? It
has been unequivocally been weakened by the once unimaginable
cost of jet fuel and untrammeled competition. What is genuinely
frightening about the current situation is that with the
exception of Frontier which remains in the air, the other
carriers simply shut down. They did not "reorganize" under
Chapter 11, but died quickly. In the not too distant past, big
stakeholders such as banks, lessors and aircraft makers had a
lot at stake, enough to keep a troubled airline flying while
debts were restructured and new capital sought. In today's
economic climate, nobody is willing to invest a dime in a
stricken airline.
Fortunately, our company is almost wholly international in
scope. The all-cargo and combination airlines we deal with like
UPS, British Airways, Cargolux, Lufthansa, Qantas, Air New
Zealand are in far stronger financial positions than their U.S.
counterparts. Our cargo continues to move quickly and
efficiently. Let's hope the U.S. virus does not spread overseas.
"Within the space of
a few days,
Aloha Airlines, Challenge
Airlines and ATA stopped
flying. Frontier Airlines filed for
bankruptcy. And the greatest
upheaval of them all;
American Airlines canceled
thousands of flights leaving
passengers and shippers in the
lurch."
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"Near Sourcing" The Next Manufacturing Trend?
In the world of international trade, the last two decades has
unquestionably belonged to China. From a poverty stricken,
largely rural nation, China has emerged as the great
manufacturing success story, the "factory to the world." But as
Sir Isaac Newton taught us four hundred years ago, every action
has an equal and opposite reaction.
Global manufacturers are starting to have second thoughts about
the 10,000 mile distance to China, raising questions about its
manufacturing quality, the creep of inflation with attendant
higher costs, and the rising of its currency, the yuan, making
that nation's exports less competitive. Reacting to these
factors, a small but growing number of shippers are looking to
"near source" their manufacturing processes. That means finding
and securing raw materials, components and even finished goods
as close as possible either to their point of consumption or to
final processing. This strategy is directly opposite the
scouring of the world to find nations with the lowest cost
production of goods. Companies adopting this strategy, however,
believe there are compelling offsetting factors. These include
greater control by the shipper and lessening costs along the
entire supply chain. Rising fuel costs, slowing world trade
expansion and tapped-out American consumers also are causing
many companies to rethink their almost single minded allegiance
to the lowest manufacturing cost without regard to distribution
or quality controls.
How will this near sourcing trend affect forwarders who move the
great majority of parts, components and finished products around
the world? Not significantly because goods still will have to be
moved with only the source of supply changing. Ocean freight
will remain the dominant form of international transportation
with air retaining its share. Because supply would be closer to
final distribution points, shipping should be faster and freight
needn't be piled up in distant, foreign sea or airports waiting
to be sent. Near sourcing is a healthy trend for U.S. jobs and
our entire economy (take note, Lou Dobbs) and should be taken up
by more manufacturers.
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Virgin Atlantic Can't Consummate Cargo
 While
Virgin's chief, Richard Branson, generates attention by
comporting himself with coconut oil as a substitute for jet
fuel, his cargo department just isn't being consummated. The
airline recently shuttered its Los Angeles and Orlando freight
facilities and laid off most of its cargo staff. Virgin's only
remaining U.S. facility is in New York with a greatly shrunken
and demoralized staff. Cargo just doesn't seem to have the
glamour and excitement of the jet set world that Sir Richard
craves. The Virgin cargo web site boasts of its "commitment to,
and focusing on customer satisfaction." Unfortunately, there
will be a lot less Virgin people to focus on customers.
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Julian
Keeling
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