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November 2005 Newsletter
Is The Fed Pushing The U.S. Into A Recession?
 Is
Alan Greenspan, head of the Federal Reserve,
really the financial genius most commentators
make him out to be? I wonder. Under
Greenspan’s direction, the Fed has quadrupled
interest rates during the past eighteen
months; from 1 per cent to 4 per cent—with no
end in sight. Greenspan is so frightened by
inflation, he is determined to keep raising
interest rates as long as he remains chairman
of the U.S. central bank, until January 31,
2006. But is inflation really that much of a
threat to the U.S. economy? Shouldn’t
Greenspan and his fellow Governors at the Fed
worry much more about a possible slowdown in
our economy? made worse by the relentless
hiking of interest rates every three months.
"Greenspan is so frightened by
inflation, he is determined to keep raising
interest rates as long as he remains chairman
of the U.S. central bank..."
Already, signs unmistakably are pointing to a
drop in economic activity. While real estate
brokers keep telling homeowners that a great
housing market exists, try selling a house
today for its asking price. High energy prices
are sapping most consumers’ ability to buy the
necessities of life, let alone having money
left over for discretionary items. On the
business front, companies as diverse as Intel
and International Paper are warning about
softer demand for their products. Importers
are turning a wary eye on the mountains of
merchandise they have ordered from Asia,
wondering if they will be sold during the
upcoming Holiday season.
Britain’s current gloomy economic situation,
brought about largely by the raising of
interest rates by the Fed’s equivalent, the
Bank of England, should give us pause. About
two years ago, the U.K. was flourishing.
Housing prices were jumping 10 and 20 per cent
per year. Retail sales from the lowly Marks &
Spenser to the lordly Harrods, was booming.
Pay packets were flush. The Bank of England
decided Britain was enjoying too much of a
good thing. They began both restricting the
money supply and raising interest rates to
“fight inflation.” They kept raising rates
until today, the U.K. is on the verge of a
genuine recession. Housing prices have
collapsed. Retail sales are way down and the
ordinary British family is bracing for hard
times.
Let’s not make the same mistake as our English
cousins. In attempting a “soft landing,” let’s
not plunge our country into a severe economic
dislocation that will affect all of us. Air
freight is having plenty of problems, even in
a supposed healthy economic climate. Domestic
volume is way down and even international
traffic is showing signs of weakness.
Let’s not make it worse.
Perhaps it is fortuitous timing that
Greenspan’s term of office is up in January,
’06. It will be interesting to see how his
successor, new Fed Chairman Ben Bernanke, will
act. Will he be independent of Greenspan
although he claims that Greenspan’s actions on
interest rates will be continued. The first
six months of ’06 will be crucial.
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Globalization; Friend Or Foe Of
America?
 We
all have heard the arguments endlessly. The
belief that globalization is good for
America. It stimulates trade; it makes all
nations wealthier so they could buy more of
our products. The world becomes one unified
dynamo that hums like a finely tuned engine
with everyone enjoying a higher standard of
living. That is the theory. What is the
reality?
The reality is personified by Steve Miller,
the new chief of Delphi Corporation, the
auto parts maker. Mr. Miller recently stated
that his company can avoid bankruptcy and
remain competitive only if its labor force
agrees to take a 70 per cent pay cut and
eliminate all medical and pension benefits.
Mr. Miller’s statement is the true face of
globalization. His frightening statement is
a recipe for disaster for the thousands of
employees at Delphi, many of whom have spent
their entire working lives there.
More ominously, it is a harbinger of what
lies ahead for American industry as
globalization becomes more prevalent.
Stripped of its high flown rhetoric,
globalization actually is a call to lower
our standard of living here in the U.S. in
order to “compete” with lower wage nations
abroad. And manufacturing jobs are not the
only ones affected. Employment in service
industries, originally thought to be immune
from lower priced competition
overseas, also is becoming increasingly
targeted. Just ask all those thousands of
laid off customer relations people whose
jobs now are handled by people in India and
Bangladesh. Their English may not be
perfect, but the Wells Fargos and Hewlett
Packards of the world love their minimal pay
levels.
"Stripped of its high flown rhetoric,
globalization actually is a call to lower
our standard of living here in the U.S. in
order to “compete” with lower wage nations
abroad."
Of all the economic pundits and assorted
“experts” heard on TV and perused in the
newspapers, only CNN commentator Lou Dobbs
seems to have gotten it right. He correctly
points out that globalization simply is a
euphemism for slashing of American wages to
eventually become “in balance” with the much
lower incomes of workers in China, India and
every other nation hustling after our
business. As U.S. income drops, who is going
to buy all those shiny new cars or plasma TV
sets?
A really vicious cycle can start as income
falls off, buying power recedes and
unemployment rises as all jobs have flown
overseas. Let’s stop this cycle before it
destroys our economy.
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We Need More Balanced Trade With China
 One
of the worst kept secrets in our business is
the heavy imbalance of trade between the U.S.
and China. Ever since China opened its doors,
ever so slightly, to foreign products, the
imbalance is on a 90-10 scale. While there is
scarce capacity on ex-China flights, there is
plenty and at very low rates, of ex-U.S.
traffic.
What kind of effort can we make to balance
this imbalance? As a start, let’s attempt to
find out what the Chinese consumer wants, and
what he or she can afford to buy from the U.S.
I’m not much of a believer in opinion polls,
but a recent poll sponsored by UPS could be of
use to American exporters. After questioning
more than 1,000 urban, middle class Chinese,
the survey discovered that high quality
personal care toiletries and consumer
electronics lead the list of most desired
American products. Apparel, fashion
accessories, music and videos were close
behind while items drawing the least interest
were U.S. cigarettes and liquor. American
business should get on the ball and make
greater efforts to market their products in
China—particularly in the large cities where a
middle class has sprung up almost out of
nowhere. U.S. legislators also should show
more common sense by not pushing for stiff
imports of Chinese goods—the latest textile
quota being a case in point.
China’s upward mobile class may be quite
prepared to buy American. Let’s encourage that
desire. It would be a big boost for American
industry in general and our business in
particular to market our products vigorously
and consistently to increase outbound trade
with China.
How long can our aircraft fly full from China
and almost empty from the U.S.?
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Boeing
Rejuvenation Helped By Freighters
 Not
too long ago, Boeing was staggering. New
aircraft orders had fallen to almost zilch.
Corporate executives were caught literally
with their pants down. The Pentagon was
investigating overruns and outright thievery
in Boeing military contracts. Today, the
future looks far brighter for Boeing as it
announces a more than doubling of earnings.
It is our industry that can take a good deal
of the credit for the almost rebirth of this
largest U.S. aerospace and commercial
aviation corporation.
Timing is everything and Boeing is the lucky
recipient of a looming wide body freighter
shortage with older freighter types nearing
the end of their productive lives. The
company recently announced a flood of new
orders for freighters and that its
production line for new 747-400Fs are
sold out until 2008. The company is so
stuffed orders for freighters, it will take
firm orders (no options) only for two or
more of the 747s. Its parallel business of
converting passenger aircraft into
freighters also is booming with those order
books full for the next three years.
Air cargo finally is getting the respect it
deserves at Boeing. In the old days,
manufacture of cargo airplanes was treated
as little more than a footnote in Boeing’s
annual reports. Passenger aircraft orders
and production were trumpeted to the skies.
Now, the company gives full credit to
freighter production in helping to turn
around Boeing’s fortunes.
Let’s hope that all those shiny new 747s
will be stuffed with cargo.
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The Adventures
Of Sir Richard (Continued)
 Sir
Richard Branson is the magician of the
airline industry. The master of now you see
it, now you don’t. His latest airline
venture, Virgin America, which was supposed
to start service as a low cost domestic
carrier earlier this year, is very much
still up in the air. His Australian airline,
Virgin Blue, is in the middle of a confusing
battle between two Aussie transportation
titans, Toll Holdings and the Patrick
Corporation. Although Virgin Blue is losing
money by the bucketful, Branson may grab a
bigger share of the domestic Australian
carrier.
But it is his antics in attempting to crash
the U.S. domestic market that makes Branson
such a prestidigitator. He is pulling every
trick in the Branson playbook to make
something out of
nothing. Huge announcements in the press,
conning Airbus to agree to an order of 50
airplanes, playing hard to get in choosing
corporate and operational headquarters with
communities from Boston to San Francisco
falling over each other to offer grants, tax
abatements and financial incentives to lure
him.
Meanwhile, fuel costs are rising inexorably.
Existing low cost carriers like Jet Blue and
Southwest keep announcing new routes. Legacy
airlines are dropping their ticket prices to
compete. So, where does this leave Virgin
America, the phantom airline? In a phrase,
“a day late and a dollar short.”
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The Many
Different Services Offered By CII
In our day to day operations, we at CII
sometimes take for granted the truly
remarkable variety and scope of our services.
As an international wholesaler with almost ten
years of continued service to the forwarder,
CII offers a broad array of logistics
solutions.
They include:
Provision for web bookings in addition to
bookings by telephone and fax.
Track and trace services from pick-up to final
delivery to the consignee.
Competitive pricing.
Accurate billing through automated booking
confirmations, with a breakdown of all cost
elements.
Preferred status with major carriers to the
South Pacific and Asia to ensure “no cargo
left behind.”
CII remains committed to the highest levels of
personal service to our more than 500
forwarder customers.
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Julian Keeling
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