September 2007 Newsletter
Space Tight To South Pacific Now Through December
 Available space for cargo to the South Pacific will
decline sharply from September through December giving
forwarders serving that market big headaches. Low rate
freight may be sitting on the tarmac as higher rated
cargo receives top priority. Be prepared to pay more
than $3.00/kg to ensure your time definite cargo arrives
on time down under.
"Be prepared to pay more
than $3.00/kg to ensure your
time definite cargo arrives on
time down under. "
It seems almost a perfect storm of negative factors is
converging to make life difficult for forwarders
shipping to the South Pacific. As of September 1, Qantas
is dropping one of its freighter services. FedEx is
virtually out of the market because of full flights of
express rated freight. UPS still is hanging in there,
but as the heavy volume season approaches, it will be
cutting back on forwarder allocation. Passenger flights
are taking less freight because of heavy passenger loads
and seasonal headwinds. Air NZ and United are out of the
business. Asian carriers no longer are interested in
transshipment of freight ex the U.S. as cargo out of
China yields far greater profit.
CII will do its best to keep customers informed of
developments as they occur. My advice; forget deals.
Higher yielding freight will obtain the highest
priority. Our 13-years of specializing in the South
Pacific and our close relationship with the airlines
serving that market will allow us to provide customers
with the highest levels of service in this difficult
environment.
Back to Top
| |
The Chinese Achilles Heel
 For too many years, we’ve been hearing about the Chinese
manufacturing colossus. These voices come from a chorus
including government trade officials, economic experts, business
executives and logistics types who have proclaimed the next 100
years as the Chinese Century.
My reaction; a loud Bronx cheer. Readers of our Newsletter know
my position on China. I have great respect for the Chinese
people who have lifted themselves out of poverty in just a few
generations. But my respect does not extend to the Chinese
communist government, one of the few genuinely oppressive in the
world. Nor to its industry which seemingly has swept to such a
commanding international position—particularly in relation to
the United States. The Chinese have an Achilles Heel, however.
Within the past few weeks, that weakness has been splashed
around the world on the front pages of newspapers and on TV.
That weakness lies in its quality control of manufactured items.
Yes, China currently is the manufacturing center of the world.
But a few more recalls and global industry may set up shop
elsewhere.
During the past month, there has been a literal cascade of
recall announcements; from tires to toothpaste and, of course,
culminating in the unprecedented recall of 19 million toys made
in China for Mattel. With losses by manufacturers and retailers
running into the hundreds of millions of dollars, and worse yet,
a damaging and perhaps fatal blow to Mattel’s image; an image
that has prided itself on the highest standards of production,
many executives are starting to have second thoughts about
putting all their eggs in the Chinese basket.
As a transportation person, I wonder just how the enormous
number of toys will be shipped in this unprecedented recall?
Will all 19 million toys be recalled to the Chinese
manufacturers or to Mattel’s headquarters in El Segundo? How
exactly will 19 million toys be collected from both retailers
and from toys already in the hands of children? How will they be
shipped in a “reverse logistics” operation? Who will pay the
enormous costs of transportation? Will the toys end up in a
landfill somewhere, or perhaps melted down for new toys? The
actual recall process should provide a fascinating lesson in
logistics.
Back to Top
|
Global Trade—What Global Trade?
 The recent Chinese debacle which left egg foo yung all over its face
brings into focus the entire question of global trade and China’s
role in it. During the past decade, the Chinese have amassed $1
trillion in Treasury notes and other securities. They will run a
$232.5 billion surplus this year with the U.S. Unless prodded by
outside nations, China has no intention of making any changes. It
cornered the global textile market initially by producing fabric
with predatory pricing followed by low-end piece goods like
T-shirts. During the past ten years, hi-tech companies like Motorola
and HP have shifted their manufacturing operations almost wholly to
China. We now have reached a point where “Made In China” labels
appear on low end products like toys (before the Mattel debacle,
China produced 90 per cent of all toys made worldwide) all the way
up to hi-tech electronic equipment.
The manufacturing success of China has ravaged the U.S. and European
ability to make goods. Companies from the Fortune 500 to little
furniture makers have moved their manufacturing bases to China, and
to a lesser extent, to neighboring countries. Since Wall Street is
marking stock prices higher, not by companies’ increased revenues
through higher pricing or expansion through sound acquisitions, but
by re-engineering and cost cutting, the world as we know it, has
turned upside down.
When the U.S. Congress passed the “Lend-Lease” Bill in 1940 to help
Great Britain in its fight against Nazi Germany, America had no
problems gearing up production to make huge profits selling all
sorts of goods to Britain (and almost bankrupting the British in the
process). When war finally came after Pearl Harbor, the wheels of
industry in the U.S. began accelerating almost immediately. It gave
us the armaments to dispose of Japan and Germany within four years.
Today, our manufacturing industry hardly is the “Arsenal of
Democracy.” Look at Iraq. It took us four years to make a single
piece of armament, the Humvee, bombproof. Defense purchases, once
sacred to indigenous suppliers, now increasingly are being
outsourced.
All we now need are automakers dumping their domestic manufacturing
operations and Boeing moving its production facilities to China.
Then the United States truly will become a “service” economy where
we will spend our time selling each other orange juice. When will
America and Europe wake up? Selling each other services is a zero
sum game. China will have taken over the world without firing a
shot.
Back to Top
| |
Does Uneven Income Really Matter?
 Americans are a relentlessly optimistic people. We always have
believed that the future would be better for our children than
for ourselves. But is this optimism valid? Statistics can be
boring but there is nothing boring about a number of basic stats
that punch a hole in this comfortable assertion.
Salaries in the U.S. are the most unequal since 1928. Adjusted
for inflation, wages of non-management employees are 10 per cent
below their levels in the early 1970s. A top CEO at a Fortune
500 company now earns up to 400 times more than a skilled worker
in his factory. A generation ago, the gap was only 20 times.
Adjusted for inflation, the average household income now is only
slightly above where it was in 1973. Despite claims by the
Administration and free market economists that we are in the
best of all possible worlds economically speaking, gross
domestic product has advanced only slightly in the past six
years and has benefited primarily those who already were
affluent.
"...wages of non-management employees are 10 per cent
below their levels in the early 1970s. A top CEO at a Fortune
500 company now earns up to 400 times more than a skilled worker
in his factory. A generation ago, the gap was only 20 times."
These same economists and political scientists tell us it is of
no concern either economically or morally that the income gap is
widening each year. But the best thing for a healthy U.S. is a
vibrant middle class. This “healthy” middle class is being
hollowed out by the enormous loss of high paying manufacturing
jobs and the huge increases in personal debt. Because of the
weakened condition of millions of our fellow citizens, we now
find a vast divergence between our national interest and the
much narrower interest of multinational corporations whose
primary concern is off-shoring their manufacturing operations to
boost their bottom line.
Why is this unequal distribution of wealth important to our
cargo industry, busy in the trenches moving freight from Point A
to Point B? Whom do you think is buying all that stuff we now
are moving between China and the U.S.? The great middle class,
that’s who! The middle class remains the backbone of our society
and if it erodes too much with its purchasing power gone, the
enormous volume of trade will be whittled down to a comparative
trickle. Globalization advocates never tire of telling us about
the benefits of free trade, but are strangely quiet about what
constitutes fair trade. Fair trade is just what it says. It is
based on rules and regulations that are fair to all parties.
Several major U.S. trading partners are dramatically breaking
these rules with massive currency, tax and capital subsidies and
through unfair labor and environmental practices. Is it
anti-trade to demand that agreements be worked out allowing fair
and enforceable labor and environmental standards among all
participants? Hardly.
Forwarders currently are enjoying substantial volumes in
international trade (profits are another story). Let’s not kill
the goose that lays all those golden eggs. Trade and economic
growth go together. But only on a fair and equal basis.
Back to Top
|
Virgin America—More Hype Than Substance
 Start-up carrier Virgin America began operations last month
out of San Francisco and as usual, this newest Richard
Branson brainchild generated more hype than substance. While
San Francisco’s City Hall was bathed in red light one night
(Virgin’s color), the airline itself was in a code red
situation. Behind its glitzy facade stands a cut-rate
airline. Virgin America’s IT system, rather than providing
computer information from a single and proprietary source,
standard at almost all the other airlines, is “outsourced”
among a hodge podge of different software companies. Reason;
to save money. While a few million dollars may be saved,
general confusion reigns behind the scenes with its people,
many new to the airline business, doing their best to cope.
It is indeed puzzling why Branson believed a new, low cost
trans-con and SFO-LAX airline could be profitable.
Competition by both the legacy and low ost carriers is
fierce. Three major airlines; United, American and
Continental have strong, established routes trans con while
Jet Blue is a new and powerful entry. SFOLAX long has been
dominated by United and American. Frontier believed it could
crack that market against those two giants and discovered
how wrong it was. After about a year of very low load
factors, Frontier abandoned the route two months ago.
Perhaps Virgin America, against the odds, will succeed. But
history is against it. Also, Branson’s other two carriers;
Virgin Atlantic across the Atlantic and Virgin Blue in
Australia have not proven particularly successful. It is
interesting the Virgin group of companies never publish
profit figures. Perhaps because there isn’t any.
"It is interesting the Virgin group of companies never
publish profit figures. Perhaps because there isn’t
any."
Back to Top
| |
Iraq On One Million Dollars A Day
 With
statistics, it’s all in the way you present them. Tell people
that it is costing taxpayers up to $1 trillion, and still
counting, for the Iraq war and you get a yawn. But tell them the
cost of the Iraq war is equivalent to spending $1 million per
day every day since the sons of Abraham left Mesopotamia — now
Iraq-five thousand years ago for the Promised Land, and watch
them react with horror and disbelief.
Back to Top
|
Julian
Keeling
|
|
