|
|
September 2005 Newsletter
Let’s Make Fuel Surcharges Commissionable To Forwarders:
Now that fuel surcharges have rocketed to
$0.50/kg (actually higher than freight rates
to some destinations!), a question that
requires answering is: isn’t it about time
forwarders get some share of the “profit”
airlines are reaping from this surcharge? As
it now stands, the surcharge is a
“disbursement” which is passed onto the
shipper at cost.
My personal opinion: it is about time this
surcharge should be incorporated into the
selling rate. It would be similar to the
practice years ago by shipping companies with
their once “c/baf” surcharge. It is obvious
the price of oil will not go back to $20 per
barrel anytime soon and perhaps never.
For fifteen years, the cargo sector of the
airline business has been in disarray.
Shippers and forwarders have enjoyed a
constant decline in rates. Any rate increases
have been stymied with carriers forced to
reduce tariffs after bravely raising them.
There are a few exceptions, most notably the
South Pacific where carriers are sticking to
their guns. I believe the airlines are too
frightened and timid to insert security
charges (which now are permanent) and fuel
surcharges into the body of the rates in fear
of forwarders leveraging those tariffs.
In last month’s Newsletter, I warned about the
lack of new hires in the airline industry.
Quite frankly, apart from one or two
exceptions, the quality and competence of the
airline cargo executive has declined
progressively since the airlines hit the skids
post 1991 Gulf War. Top young executives have
left the airline industry for greener
pastures.
In my opinion, gutless, poorly qualified
senior airline people are using the jump in
oil prices to grab a freight increase. Don’t
kid me: the rise in fuel prices cannot be
quantified in a flat rate per kilo. For
starters, short haul flights use lesser
amounts of fuel. The price of fuel varies
according to the routes the carrier serves.
And some airlines have successfully hedged
future oil prices.
Give me a break. We all know that most rates
ex-United States are dirt cheap. A
straightforward, in the open rate increase is
fully justified. Most airlines are hurting.
Mr. Airline Executive: just have the courage
to announce an increase in rates and hold the
forwarding community to the new price level.
It really is that simple. Stand up and be
counted. Don’t hide behind fuel and security
charges.
Back to Top
| |
Domestic Air Freight; R-I-P?
Kitty Hawk recently announced its revenue
and tonnage losses for the year were
continuing with a particularly sharp drop in
the second quarter. The Dallas-based carrier
said that at best, only a modest projection
of growth for its air arm during the
remainder of 2005 could be expected.
Concurrent with the report of lower earnings
was the announcement that the airline was
extending significantly its nationwide
ground network. These two announcements by
one of the leading domestic all-cargo
carriers together with BAX Global’s recent
reduction in lift and greater emphasis on
road service, are major indications of
serious trouble in domestic air freight.
Dedicated, expedited trucking services are
grabbing larger volumes of “must move” cargo
that once unquestionably traveled by air.
What’s happening to the once $10 billion
domestic heavyweight air freight business?
Simply put, circumstances are converging to
accelerate a downward spiral that seems
almost impossible to stop or reverse.
Truckers are taking up the slack. Truckers
may be made up of “dese,” “dose” and “dem”
guys but they saw an opportunity and took
full advantage of it.
"Dedicated, expedited trucking services
are grabbing larger volumes of “must move”
cargo that once unquestionably traveled by
air."
Sky high jet fuel prices, elimination of
many domestic flights or substituting
smaller aircraft by the carriers combined
with traditional disdain for cargo by senior
airline management, created a vacuum in air
freight which truckers were only too glad to
fill. Surface carriers always had a cost
advantage because it’s much cheaper to drive
a truck than fly an airplane. In the past,
however, truckers did not have the
reliability nor consistent level of service
that shippers demanded for their premium
freight. That no longer is the case. The big
LTL trucking companies, and even the smaller
ones, have combined up to date IT systems
with smart scheduling that allow truckers to
deliver freight to almost any destination
within the U.S. as quickly as by air, at
lower cost and often with greater
reliability.
Perhaps most surprising, even when cost is
not a determining factor ground often still
has the edge. Forwarders increasingly are
opting for expedited ground service even if
it is more expensive because “we cannot rely
on the domestic airlines any more” That’s a
frightening thought for airlines hoping to
win back cargo that has shifted to the
nation’s highways. The
trend toward surface traffic here in the
U.S. may provide a window on the future of
ground services around the world as models
for distribution and transport.
Life is full of ironies and the air freight
business is no exception. Just after World
War II, John Emery, Sr. started Emery Air
Freight and almost single-handedly created
an industry initially geared to handle
emergency shipments. Fifty years later, we
may be going back to the future with
domestic air cargo once again becoming
primarily a vehicle for emergency packages.
"It is a company where solid, middle
management is overshadowed by a game of
musical chairs being played in the executive
suite..."
Back to Top
|
Welcome Aboard, Roger:
Roger Carias joined us last month as Senior
Accountant. Prior to deciding that air freight
looked as though it was full of opportunity,
Roger was in hospital administration. Roger
obtained his degree in finance from LaVerne,
one of the finer private colleges in southern
California.
After just one month, Roger has devised and
implemented a number of vast improvements in
Administration/Accounting. Both he and Lyne
Enzweiler, V.P. Administration, work as a
team. They are leaving no stone unturned. If
they find areas where our systems can be
improved, they just go ahead and make the
necessary changes. Already, Roger is a highly
respected colleague. His quiet professional
manner is matched by his enthusiasm to improve
our systems. I certainly appreciate what he is
doing for CII and it’s nice to have another
smiling face in our office.
Back to Top
| |
New Qantas
Non-Stop SFO-SYD Service To Aid Forwarders:
International air freight is in much better
shape. A striking example of the diverging
trends between domestic and international
cargo is the West Coast-Australian picture.
Air freight service for the important San
Francisco-Bay Area market, which of course
includes Silicon Valley, will be improving
early next year with the start of new Qantas
non-stop service between SFO and SYD. The
airline has announced that starting next
March, three Boeing 747-400 flights per week
will be traveling “down under.” Since these
are passenger flights, cargo capacity on each
aircraft will be limited to no more than
50,000 lbs. of belly cargo depending on
passenger loads and wind conditions.
We could use this new, although admittedly
limited lift. Cargo volume to the South
Pacific is strong with the Australian economy
still a vibrant one. The new Australian
flights complement very nicely the recently
begun Air New Zealand nonstop service between
SFO and Auckland.
Interestingly, these two nations are among the
very few in which the U.S. has a favorable
balance of trade.
Forwarders now can cut as much as two and
three day transit time to Australia with the
new service. No need to truck cargo down to
Los Angeles with the inevitable delays in
transferring cargo to flights out of LAX.
Back to Top
|
Canberra Nixes
Bid By SIA For Australia-U.S. Route:
Singapore Airlines received a setback when
its application for a direct Australia-U.S.
route was denied by the Australian
government in Canberra. The airline was
seriously disappointed after a lengthy
lobbying campaign in the Australian capital.
SIA spent millions of dollars in lobbying
efforts to obtain the route.
Australia’s flag carrier, Qantas, however,
breathed a sigh of relief. The Australian-U.S.
route is the most profitable for the airline
both in passenger and cargo traffic.
Stirring the mix was that mischief maker,
Sir Richard Branson, whose domestic
Australian carrier, Virgin Blue, wants
permission to fly South Pacific routes. And
adding to the confusion, if that was
possible, top government officials support a
merger between Qantas and Singapore
Airlines.
Neither airline is enthusiastic about
joining and the government’s wishes,
announced at the highest level, probably
will go nowhere.
Back to Top
| |
China—A
Study In Contradictions:
People in our industry wonder why I don’t want
to join the cheer leading crowd for China.
Isn’t China the “factory to the world,” the
source of almost all the growth in air
freight? Yes, China currently is an export
powerhouse but that nation is so riddled with
contradictions, its future growth and
prosperity is by no means assured.
The role of government in China is exactly
opposite to that in Western democracies. In
public places, where citizens of most
democratic societies would expect a government
presence, it is inactive and absent. In
contrast, the Chinese government is active and
present in private places in ways that would
startle people from free-market nations. The
Chinese government makes no effort to protect
its 1.5 billion citizens from industrial
pollution, the worst in the world, nor make
its citizens healthier. It has no equivalent
of the SEC, let alone an Elliot Spitzer, to
protect investors from financial fraud. In a
number of cases, officials have become
accessories to all types of investment scams.
Despite its official “hands off” policy toward
industry, the Chinese government is highly
intrusive both in large and small companies as
owner, entrepreneur and manager. It produces
goods as varied as steel and toilet paper.
Independent banking as we know it, simply does
not exist. The government controls every major
bank, awarding credit to its friends and
supporters rather than by free market forces.
"The government controls every major bank,
awarding credit to its friends and supporters
rather than by free market forces."
The government is intrusive in peoples’
private lives. It searches homes without
search warrants, arrests its opponents on
trumped up charges of encouraging prostitution
and sentences these unfortunates to “labor
education” without benefit of trial by jury.
By removing itself from activities that are
considered the government’s domain in most
democratic, market oriented societies and
meddling in those activities that are not,
China attempts to combine and compromise the
very premises of the two opposite systems of
communism and capitalism. In attempting to
compromise and unite these two opposite
systems, China has created a volatile and
dangerous cocktail blending the worst aspects
of capitalism and socialism.
When will all these contradictions catch up
with the now pulsating Chinese economy? I
predict sooner rather than later.
Back to Top
|
Korean Air
Lines Number 1 In Cargo:
While all eyes seem to be focused on China,
another Asian nation, Korea isn’t doing too
shabbily on the economic front. The country
is booming and unlike China with its almost
total concentration on exports, Korea has a
healthy mixed economy of domestic demand and
solid export growth.
The country’s flag carrier, Korean Air
Lines, reflects this prosperity. For the
first time since IATA began collecting air
freight statistics shortly after World War
II, an Asian carrier has won top spot in
cargo volume among all the world’s airlines.
Korean Air’s cargo operation has been ranked
first in tonnage flown. Korean Air nosed out
Lufthansa in 2004 by moving a record 25
billion freight ton miles. The German
carrier had retained top position for the
previous nineteen years.
Winning of the top spot by Korean Air says
something about the changing fortunes of
Asian vs. U.S. and European airlines. Three
out of the top four airlines in cargo ton
miles for 2004 were Asian with Korean Air in
first place, Lufthansa second; then followed
by Singapore Airlines in third and Cathay
Pacific in fourth.
Back to Top
| |
Pilots Do
Have A Sense Of Humor:
Most passengers, when thinking about the men
up in front in the cockpit, imagine them to be
humorless, straight as arrow types. Somewhat
surprisingly, most pilots have a sly sense of
humor which shows up in bars where crews often
congregate after a flight.
Here are some of their irreverent, off the
record definitions of various aviation terms.
Pilot: A poor, misguided soul who talks
about women when he is flying and flying when
he’s with a woman.
Occupied: An airline term for a
lavatory.
Glider: Formerly an “airplane” prior to
running out of fuel.
Bail out: Dipping the water out of the
cabin after heavy rainstorm.
Barrel roll: Unloading the beer for a
hangar party.
Navigation: The process by which a
pilot finds his way from Point A to Point B
while actually trying to get to Point C.
Radar: An extremely realistic type of
video game often found at airports where
players try to send small game pieces called
“blips” from one end of the screen to the
other without colliding with each other.
De-Icer: De person dat puts ice on de
wing.
Exceptional Flying Ability: Has equal
number of take-offs and landings.
Final Approach: Many a seasoned pilot’s
last landing; many a student’s first landing.
Sincerely,
Julian A. Keeling
Back to Top
|
|
|
