May 2009 Newsletter
Recession Has Changed Us—But For How Long?
I always am intrigued by questions that can’t be
answered.
The one question I now ask myself as the recession in
the real world becomes deeper while the stock market in
a world of its own keeps jumping; has the recession
changed the way we live? In the past, the answer would
be unequivocally, no. In past post World War II
recessions, our faith in free markets and the vitality
of U.S. corporations never was shaken. We always
returned to our prolifigate ways. Today is different,
however. Our trust in the power and strength of U.S.
institutions has taken a severe beating.
"Once the economy
rebounds, will we go back to
buying McMansions and big,
status-driven cars?"
But will our skepticism and sense of caution last once
we inevitably climb out of this economic morass? Have we
fundamentally changed or are we just reflecting bad
times? Once the economy rebounds, will we go back to
buying McMansions and big, status-driven cars? Or will
be like the children of the Great Depression who paid
for everything in full and abhorred even a few dollars
of debt?
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Can Airlines Make Money In These Recessionary Times?
What a stupid question. Every law of economics tells us when
volume sags, profitability flies out the window. But the
airlines seem to be defying the economic laws of gravity at
least in the eyes of many on Wall Street. With passenger volume
having declined the sharpest since 9/11 and air freight in a
free fall, a number of airline analysts expect the major
carriers to post profits when calendar 2009 ends. This
profitability should occur, they say, despite substantial first
quarter losses. If they are right, the airlines will achieve a
remarkable comeback.
Quite simply, U.S. carriers in the aggregate could end the year
in the black. Airlines are cutting passenger and cargo capacity
as if they never expect to grow again. Delta just put in
mothballs the entire Northwest fleet of B-747 cargo aircraft.
The airline business is highly leveraged, however. With fuel
costs relatively benign combined with a reduction in lift, it is
entirely possible the carriers will shrink into profitability.
The only losers in this new economic equation are the big
airplane makers. They are continuing to build planes almost in a
state of denial. These aircraft with the infamous “white tails”
probably will pile up in front of their factory doors. Freight
forwarders could only applaud a healthy airline industry.
"With
fuel costs relatively
benign combined with a
reduction in lift, it is entirely
possible the carriers will
shrink into profitability."
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There is just no way of knowing.
If we go back to the days when the shopping mall was our church
and thought nothing of flashing our credit cards, we may regard
the current recession as a minor interruption in our march
toward ever growing amounts of goods and services paid with our
credit cards. In that scenario, business and industry again will
flourish. Ships and aircraft will be laden with cargo as goods
once again flow into our seaports and airports. What if we
basically have changed, however, and our current sense of fiscal
prudence and moral rectitude becomes the norm not of a few
“Greenies” but almost our entire population? The social,
economic and political consequences would be enormous. It would
transform our economy from one geared to consumption to one
concentrating on saving.
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Tuna Fish Retains Popularity In Good & Bad Times
In last month’s Newsletter, I commented on the growing
operations of CII and Corrigan’s Express in supplying
the tuna industry. We are supplying primarily its
fishing fleets and canneries in the Western Pacific.
With CII and Corrigan’s playing an increased role in the
tuna industry, I wanted to learn more about this
business. It’s a fascinating and growing part of the
food industry.
Tuna fish is extraordinarily popular not only with
Americans but people around the world. In the U.S., we
consume about one billion pounds of tuna per year. It is
growing at about a 4 per cent rate, recession or no
recession. Fully one third of all fish consumed in the
States is tuna. It is the single most populr item in
school kids’ lunchboxes. Eighty three per cent of school
children eat a tuna sandwich at least once a week in
their school lunchrooms. Almost all tuna today is canned
with a small percentage made into fancy tuna steaks at
fancy sea food restaurants. The Japanese love fresh tuna
and will pay exorbitant prices, up to $350 per pound,
for the most prime tuna. Fish caught off the islands of
the Western Pacific are flown to Tokyo as soon as the
boats hit port.
Bringing tuna to your local supermarket involves a vast
industry with tuna boats ranging in oceans from just
below the Arctic Circle to the Equator. It is now
concentrated in the Western Pacific where our customers
like Chicken of the Sea are active. We are proud to be
part of a business that feeds hundreds of millions of
people economically and with great nutrition.
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Amazon Shipments May Be Starting To Decline
A very troubling sign there still is no light at the end
of the recessionary tunnel is the current and future
sales picture at Amazon.com. Almost single handedly,
Amazon has given hope to the entire retail segment of
our economy. While other retailers from high end
department stores to discount chains are reporting lower
sales and earnings, Amazon has bucked the trend with
rising sales volume and profitability. It seemingly was
defying the economic laws of gravity.
Now, the dot com retailer is tightening its belt. Three
of the company’s major distribution centers are closing
next month as the economic downturn finally hits the
great retail success story in the U.S. economy. It will
be interesting to see Amazon’s next quarterly results.
The possible Amazon reversal is bad news for our
transport industry. All those millions of books and
records must be physically shipped to their customers.
Now, we’ll need less trucks and planes for less product.
Inventory replenishment by all retailers seems to be
receding into the future as the recession drags on and
retail executives take note that even Amazon’s
invincibility may be tarnishing. Using expensive
delivery systems to move more and more merchandise into
warehouses for stockage when consumer demand is tepid to
non existent is hardly smart business..
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Pay Toilets Get All The Attention; Elimination Of Counters More Serious
Budget airline Ryanair
likes to make news with its mischievous chairman,
Michael O’Leary, often making outlandish statements. The
latest utterance from Dublin was O’Leary’s not entirely
joking statement that his airline was considering plans
to charge passengers for using the toilets on his
aircraft. O’Leary’s statement garnered world-wide
attention for the airline as other carrier executives
and ordinary passengers rushed in with opinions on this
sensitive subject. Of course, everyone denounced the
idea, but O’Leary received his fifteen minutes of
attention.
While the toilet brouhaha was reaching its peak, Ryanair
made another announcement which was overlooked almost
completely by the world’s press. This statement was far
more meaningful. The airline quietly announced it was
closing all of its ticket counters in October at all of
its airport locations. Ryanair will force its passengers
to check in on-line. For passengers with baggage to
check, which Ryanair discourages, there will be kiosks
for passengers to drop off, and pay, for checked
baggage.
Another airline tradition bites the dust.
The ticket counter has been a fixture at airports since
civilian aviation began. Walking up to the ticket
counter for a preflight check-in has been as natural as
packing a suitcase for a trip. Will the Ryanair action
start a trend with other airlines duplicating the
carrier’s removal of ticket counters? In the past,
Ryanair was laughed at by other airlines for its
seemingly senseless innovations like removing window
covers and seatback pockets to save fuel. Yet, some of
these absurd changes eventually were adopted by other
airlines. Will the ticket counter go the way of free
meals on board, free baggage, non-discriminatory choice
of seats and other passenger amenities once taken for
granted? Keep tuned.
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Forwarder-Shipper Contracts Not Worth The Paper They Are Printed On
A few years ago when air freight volume was rising at an
almost dizzying rate of twenty per cent per year and
only the sky was the limit, big forwarders like AEI and
BAX were falling all over themselves to announce “major”
contracts with their big shipper customers. I commented
at that time these “contracts” were not worth the paper
they were printed on. My reasons were born of experience
in the forwarding business. Let another forwarder come
up with a lower rate on a particular lane segment or a
specific commodity and the shipper would abandon his
contract forwarder like greased lightning and with no
regrets whatsoever. There are contracts and there are
contracts. Forwarder-Shipper contracts were in the “not
worth the paper they were printed on” variety.
"Because of unprecedented
weak demand, contract rates
are vanishing as quickly as an
ex-lover. The entire air cargo
market today is a spot
market. The airlines are
almost saying, “name your
price.”
In this current downturn, freight rates are hitting rock
bottom with airlines so far failing to cut capacity as
fast as demand. Because of unprecedented weak demand,
contract rates are vanishing as quickly as an ex-lover.
The entire air cargo market today is a spot market. The
airlines are almost saying, “name your price.” Will
contract rates ever return? Probably in some new guise
if the cargo market shows genuine strength once again.
But don’t count on shippers’ fidelity. Have another
forwarder offer a reduced rate of a few cents per kilo
and the whole merry-go-round starts again. The shipper’s
response, “contract, what contract?”
"But
don’t count on shippers’
fidelity. Have another
forwarder offer a reduced
rate of a few cents per kilo
and the whole merry-goround
starts again. The
shipper’s response, “contract,
what contract?”
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Siegfried “Siggi” Koehler; R.I.P.
Siegfried “Siggi” Koehler,
who died a month ago, was perhaps not as well known as
other leaders in the air freight industry like John
Emery, Sr. or Fred Smith. He was one of those few
people, however, who helped change the course and
direction of our entire business.
Koehler spent his entire career at Lufthansa where he
transformed that airline’s cargo department from a minor
appendage to Lufthansa’s passenger division to a
separate, full fledged operation. The Lufthansa cargo
chief created a separate cargo department with offices
around the world, selling freight exclusively.
Witnessing Lufthansa’s success in having cargo stand on
its own, other airlines rushed to copy it. Under
Koehler’s urging, Lufthansa senior executives OKd the
purchase the first B- 747 freighter, which changed the
operational face of air freight throughout the world.
Largely because of Koehler’s pioneering efforts in
utilizing the Boeing as an all-freighter, air freight
volume surged exponentially. That freighter still
remains the standard for air cargo today and is one of
Boeing’s most successful aircraft.
"But
don’t count on shippers’
fidelity. Have another
forwarder offer a reduced
rate of a few cents per kilo
and the whole merry-go-round
starts again. The
shipper’s response, “contract,
what contract?”
Unlike many airline executives, Siggi liked and trusted
freight forwarders. He believed in partnerships and
created the Lufthansa-Agent relationship which still
exists today. In addition to being one of the most
capable and innovative cargo executives, Siegfried
“Siggi” Koehler was a warm and giving person who shared
his knowledge and experience with cargo people around
the world. He will be missed.
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Julian
Keeling
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