Damage to global economy due to restriction of air freight

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September 15, 2001

THE CARGO TRADER

Ban on Airliners' Freight Has Businesses Scrambling

By MARK LANDLERwith RICHARD A. OPPEL Jr.

ONG KONG, Sept. 14 — One of the new security measures imposed by the Federal Aviation Administration in the wake of Tuesday's terrorist attacks — banning cargo from passenger planes — threatens to severely disrupt the electronics industry and other businesses for weeks to come, according to shipping agents, exporters and airlines.

Most air freight within the United States is carried on cargo-only freighters, but about half the goods moving by air across the Pacific are shipped on planes shared with passengers. Much of that traffic is in electronic products and components — microchips headed from the United States to assembly plants in Taiwan, China and elsewhere, and completed computers, digital assistants, phones and other products making the return trip. All of it has been grounded since Tuesday, in an industry where a cost-saving strategy of just-in-time delivery of products and parts is common.

The F.A.A. gave clearance today for some international carriers to resume flying to the United States, and service is gradually being restored. But the shocks to the world's air-cargo trade have only begun to be felt, according to industry experts in Asia and the United States.

The F.A.A.'s order has sent American companies scrambling to book space for their shipments on all-cargo jets, particularly those flying routes to Asia, and airlines specializing in cargo are seeing a sudden boom in business at a time when they had been suffering from overcapacity. But the order has added to the woes of many passenger airlines, especially Asian carriers, which tend to depend heavily on cargo revenue from mixed passenger-cargo flights.

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Click here to order Reprints or Permissions of this Article "If this is a long-term thing, it will have major implications for our cargo business across the Pacific," said Antony Tyler, director of corporate development at Cathay Pacific Airways (news/quote) in Hong Kong. Mr. Tyler said Cathay Pacific, which has four passenger flights a day to the United States, had been told by F.A.A. officials that cargo would not be permitted on passenger flights for the foreseeable future.

The Hong Kong Freight Forwarding Association estimates that 55 percent of the air cargo leaving the territory is carried on passenger planes. For now, at least, that merchandise is piling up in warehouses.

United States companies that use passenger jets to ferry goods to and from Asia are hurrying to find alternatives. Advanced Micro Devices (news/quote), the semiconductor manufacturer based in Sunnyvale, Calif., said it normally moves substantial quantities of its products to customers and its own plants in Asia using passenger jets.

It is too early to calculate the cost to the company of the disruption in air shipments, but John Greenagel, a spokesman, said it would mean higher cargo costs and slower delivery times. "We'll be competing for limited capacity with other people who find themselves in the same boat," he said. A.M.D. ships wafers from plants in Austin, Tex.; Germany; and Japan to assembly and test sites in Singapore, Malaysia, Thailand and China.

The restrictions have rippled through the computer industry, which does much of its manufacturing in Taiwan, South Korea and Singapore. After flights were suspended Tuesday, computer makers began filling warehouses with notebook computers and other products bound for the United States. If they cannot begin moving goods again in the next few days, production lines will have to be halted, some executives said.

"I have a lot of chips scheduled to come from the United States," said Horace Tsiang, the president of First International Computer, a notebook maker in Taiwan. "If they don't come soon, I'm in trouble."

The Dell Computer Corporation (news/quote) has not been able to ship computers from Taiwan since Wednesday, according to a Dell executive. The company has 7 to 10 days' worth of inventory in the United States; after that, shortages loom if shipments are not resumed.

The F.A.A. has not said whether the restrictions will be temporary or permanent, but the longer they last, the more severe the financial pressures on some airlines will become. EVA Airways of Taiwan, one of the main carriers for the computer industry, said it had had to cancel most of its 31 weekly flights to the United States. EVA gets two-fifths of its revenue from cargo. "This will have a major impact on EVA," said Daniel Wu, the airline's president, "but that's less important than the impact on the overall economy."

Northwest Airlines (news/quote), which expects to resume full scheduled cargo operations on Saturday, will send its fleet of a dozen 747 all-cargo jets that fly between the United States and Asia into the air filled to capacity, said Doug Killian, a spokesman. But the extra profits from the booked-solid freighters will not be enough completely to replace the lost earnings from the empty cargo holds on the airline's passenger jets, he said.

Business is also surging at Atlas Air (news/quote), an international all-cargo airline based in Purchase, N.Y. "Everyone is scrambling to get back on track," said a company spokeswoman, Rachel Berry, who said it was too early to estimate the increase in business. Atlas resumed operations today.

After relying solely on trucks for three days while its planes were grounded, the FedEx Corporation (news/quote) resumed air service in the United States and internationally this afternoon, with about two-thirds of its fleet of all-cargo aircraft getting into the air within a few hours. [Page C1.]

Over all, the government estimates that about half of all international air cargo is carried by passenger jets, compared with about one- fifth of domestic air cargo, according to Stephen Alterman, president of the Cargo Airline Association.

At the Hong Kong International Airport, one of Asia's busiest hubs, grounded planes are parked 10 deep on the tarmac. On a normal day, the airport processes 700 tons of cargo bound for the United States and Canada. More than 400 tons of goods — some of it perishable — sat in Hong Kong's vast cargo terminal today , and thousands of tons more filled warehouses throughout the territory. With their own facilities overflowing with crates and boxes, some shipping companies had to rent temporary room elsewhere.

"Space is getting tighter and tighter," said Alice Lau, director of the Association of Freight Forwarding Agents.

Ross Allen, Asian operations director for DHL International, said: "We don't know whether the measures are temporary. There's been nothing like this in my experience."



-- Guy Daley (guydaley1@netzero.net), September 15, 2001

Answers

Thanks for posting this, Guy. I had no idea the FAA had overreacted to this extreme.

-- Big Cheese (bigcheese@multimax.net), September 15, 2001.

This can only screw up international trade, maybe fatally for a lot of airlines. I sure hope this is only temporary.

-- Wayward (wayward@webtv.net), September 15, 2001.

This is a real kick in the solar plexus for world trade.

I wonder if the FAA did a cost / benefit analysis before issuing this obviously trade-hampering regulation.

-- JackW (jpayne@webtv.net), September 15, 2001.


I can't believe the F.A.A. would do anything so incredibly stupid.

-- Wellesley (wellesley@freeport.net), September 15, 2001.

Aftermath: Hawaii shippers rack up losses Prabha Natarajan Their air cargo piled up, and now their losses must be toted up. Hawaii air cargo shippers incurred losses from this week's aviation shutdown.

Pacific Air Cargo, which shuttles a leased freight jet between Honolulu and Los Angeles, loses $30,000 a day when idle. "But we're in better condition than most others, especially air carriers," said CEO Beti Ward.

Hawaii Air Cargo, which also found shipments piling up, found that the people it serves were patient. "Our customers are very understanding," said president Brian Suzuki.

Commodity Forwarders Inc. said its refrigerated storage floor filled up with shipments during the ground stop. "Ninety percent of our business is through the airlines," said managing director Norma Acob.

http://pacific.bcentral.com/pacific/stories/2001/09/10/daily58.html

-- Martin Thompson (mthom1927@aol.com), September 15, 2001.



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