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November Newsletter
A Toast To My Trip To Russia
 Last
month, I found myself in the former land of
the czars, Lenin, Stalin—and now Putin.
Why was I in Moscow? During the past six months,
CII has found a new niche—moving helicopters
from the U.S. to Russia. This niche has been
increasingly successful. So, I was off to
Moscow to meet my Russian counterparts.
When the original helicopter
deal was proposed, we had our doubts. Would
we get paid? How were we going to get paid?
When? How much? We were perfectly aware that
Russia was a graveyard for U.S. forwarders’
business. All talk and no action. The major
reason we took the bet or “punt”
was that our suppliers told us a number of
orders already was in the pipeline. If worse
came to worst, we could hold a multi-million
dollar helicopter as hostage in order to get
paid.
Within a week of the first
helicopter on its way to Moscow, we realized
the person on the other end of the “supply
chain” possessed absolute integrity.
The firm he represented was profoundly professional.
We assumed that the people we were dealing
with were transportation folk.
They weren’t. Rather, they were a law
firm providing full legal services to any
Russian or foreign company in matters of Russian
law including Customs representation, trade
facilitation and banking transactions. They
are well established in Moscow with American
clients such as Motorola and NBC.
After the endless haggling and outright chicanery
that now passes for negotiations in our business,
what a relief to deal with a person who has
absolute integrity, representing a firm that
is profoundly professional. Profit margins
enabled CII to devote as much time and effort
as was needed to ensure that each shipment
received the "white glove" treatment.
After all the e-mails and
faxes, I simply had to meet my Russian counterparts
on their home ground. Thus, my first trip
to Russia via BA. There, I met with the consignees.
All of them could not be more praiseworthy
of CII’s efforts. They almost couldn’t
believe that every shipment arrived on time
and in 100 per cent pristine condition. They
couldn’t find enough words of praise
for our Mike Castro. I sat and listened for
one hour as they poured praise on Mike. As
I heard these compliments rain down on Mike,
I couldn’t help thinking that with all
the talk about “supply chain management”
and electronic transmission of documents;
in the final analysis, forwarding still remains
very much a people business. My visit to Moscow
yielded spectacular results. I was told to
expect moving at least 150 helicopters next
year. The helicopters are being used as a
vital transport tool in Russia’s oil
and gas industries. This business is now the
largest in Russia and is guaranteed to become
even bigger with the increasing demand for
energy products. Because of the vast terrain
and with few good roads covering remote regions,
more and more helicopters are needed. Mike
will be supervising this operation; a business
which should top $2 million next year.
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South
Pacific Cargo Rates Continue To Rise
As the Australian economy
charges ahead and trade with the U.S. increasing
sharply, space continues to tighten for both
main deck and “belly” freight.
Qantas, Air New Zealand and FedEx are steadily
massaging their rates upward. It
is long overdue. After thirteen years of declining
yields, they are making finally a turn-around.
As forwarders, we should welcome this change.
I am a perennial optimist so perhaps in our
world of freight, the dominance of price to
the exclusion of everything else is coming
to an end. The pendulum may be swinging back
to service. If a survey were taken today of
the quality of service provided by the airlines,
key players in the South Pacific would rank
among the top half dozen. Yet, these carriers’
yields, together with just about every other
carrier and forwarder, have been decimated
over the past ten years. Shippers have been
laughing all the way to the bank. With the
$A at the U.S. $0.75 mark, and the $Kiwi at
$0.70, American products never have been cheaper.
In addition to business to business products,
which traditionally have been the mainstay
of U.S.-South Pacific air cargo, we have noticed
an increase in shipments of consumer products.
I always have claimed that American manufactured
goods are of the highest standards (we have
the most productive, best skilled and most
highly educated workforce in the world) but
U.S. exports in recent years have been hampered
by the high value of the U.S. dollar.
For various reasons, the
U.S. dollar continues to show weakness. While
a blow to our national pride, a weakened dollar
bodes well for U.S. industry. With a cheapened
dollar, our goods are far more competitive
in world markets. Countries
like Australia and New Zealand are in the
beginnings of substitute modes for their
imports. Replacing cheap and often inferior
quality Asian goods fore superior made American
products will benefit both buyer and seller.
Higher shipping rates and greater volume of
exports lead to one happy benefit—greater
profitability for
our industry. The word “profit”
has been absent too long from carriers’
and forwarders’ vocabularies.
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Australia
& New Zealand; More Than The Tasmanian Sea
Separates Them?
 In
last month’s Newsletter, I criticized
severely the New Zealand government. It is
basically a socialist government that I believe
is leading the nation of my birth down a spiraling
path of economic poverty, social injustice
and loss of basic human rights. The government,
led by Labourite Helen Clark, has been a disaster
since the day she took office.
Across the Tasman Sea from
New Zealand lies its sister nation, Australia.
It is amazing how two countries, both from
basic English stock, can evolve so differently.
This was forcibly brought home to me last
month when the Australian election results
were announced. Little noticed in the U.S.,
the conservative, free enterprise government
of John Howard was overwhelmingly reelected.
Under Howard, the Australian
nation is moving forward while New Zealand
is moving backward. His free enterprise policies
have catapulted Australia into the fastest
growing developed nation with a 6 per cent
annual growth rate. Its GDP is advancing at
a prodigious rate. Unemployment is down to
a microscopic less than 4 per cent. Real estate
values are going through the roof, making
even California increases look pale by comparison.
With the new U.S.- Australian trade agreement
to take effect January 1, 2005, Australian
exports will find an even more hospitable
home in the U.S. Under a free enterprise,
capitalist system, Australia has become a
“can do” nation. In addition to
its strong economic growth, survey after survey
reveals that Australians never have been more
content with their lives or more optimistic
about the future than today. It is indeed
unfortunate that New Zealand refuses to take
a few lessons from its sister nation.
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End
Of U.S. Textile Import Quotas A Big unknown
January 1, 2005 is not only
important for the implementation of the U.S.-Australian
trade agreement, the beginning of next year
also will remove all textile import quotas.
Like so much involving U.S. trade, all eyes
turn to China. That nation already is the
largest exporter of raw and finished textile
goods to the U.S. Will textile exports from
China overwhelm the already sickly U.S. textile
industry and reduce sharply imports from other
nations? Our agents in China report it is
too early to tell; that textile imports from
that nation remain a big “unknown.”
Capacity from China even now is critical and
if Chinese textile factories go flat out with
production, tight airlift will get even tighter.
It will put a squeeze on all other
types of exports as forwarders fight for space.
While CII is not a major
importer of textile products from China, we
are watching the situation with keen interest.
We would not be happy if our business is pinched.
Apparel importers would pay a premium to get
their “hot” products to market
fast, crowding out less timely products.
Capacity inevitably would
tighten. China is a two-faced market. Business
is great,
but the very success in generating traffic
makes obtaining lift at a price you want to
pay, is a continuing struggle. Let’s
see what happens when 2005 rolls around.
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Record
High Oil Prices; How Much Do They reflect The
Real World?
Last month, the Los Angeles Times business
section’s front page featured a photograph
of a bunch of grown men and women jumping
up and down and screaming their heads off.
Who were these supposedly sane people? They
were what I call “cowboys” but
who are officially known as “traders”
on the New York Mercantile Exchange. These
“traders” were in a frenzy buying
and selling oil futures. I felt so angry yet
so helpless that these generally young men
and women were getting their exercise by literally
holding up the world to ransom supposedly
in the name of free markets and open competition.
At the time of the Times’ story, the
“excuses” made by the traders
in pushing up prices to well over $50 a barrel
was a general strike in Nigeria and drop in
production in the Gulf of Mexico due to the
hurricanes. What nonsense! Both areas produce
a small fraction of the world’s needs.
While I believe in free enterprise and sensible
open markets, there comes a time when governments
must intervene for the common good. Oil is
an essential commodity, perhaps the most essential
of them all. Here, the free market simply
doesn’t exist. When was the last time
you heard about investors organizing an integrated
oil company? Maybe back in the days of John
D. Rockefeller and J.P. Morgan. Two or three
years back, I commented on how all those oil
mergers were leading to control by an oligopoly
of oil producers. Sadly, I was right on the
money. Oil now is in the hands of the Big
Four; Exxon-Mobil (with a cash hoard in excess
of $22 billion), BP, Shell and Chevron-Texaco.
All four over the past year have been reporting
net profits of plus $3 billion each quarter.
Yet, this huge amount is but a fraction of
their real income. They receive massive tax
benefits for exploration and depreciation.
The biggest obstacle to our
forwarding industry continuing its growth
and prosperity is the price of crude. How
that translates into the price at the gas
pump
and in jet fuel is the big question. We forwarders
keep getting notices from the airlines about
“unavoidable” fuel surcharges.
Unavoidable or not, if they continue, these
surcharges will price air freight right out
of the market for thousands of customers.
If oil companies continue to collude with,
and allow these clowns of traders in the futures
pit to manipulate the price of oil to $60,
$70 and even $100 a barrel, heaven help our
industry in particular and the world economy
in general. We may see a return to the seventies
with huge inflation, high interest rates leading
to a global recession and massive unemployment
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Margaret
& Alice Off To China Again
Margaret Ng and Alice Hsiao, who head our Rapid
Dragon Express division, are once again packing
their bags for another visit to China, later this
month. Business into and ex-China continues to grow
for CII. During the past few years, we have built
up a number of excellent relationships with Chinese
forwarders.
Every month, our shipment count
and revenues continue to climb. Despite all the
headlines about the huge increases in China trade,
the market is not that easy to develop and nurture.
Our success can be attributable to the hard work
of Margaret and Alice and the investment CII has
made in this market. One of our Chinese partners
recently said to us, “It’s all about
PRC.” Our immediate retort was, “Yes,
we know it is the People’s Republic of China.”
“Wrong,” they answered. “It is
all about
PERSEVERANCE, RELATIONSHIPS AND THEN THE CASH.”
So far, we definitely have succeeded
in the first two. As each month goes by, the third
is looking more and more likely.
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