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   Vol. 16 No. 7
Thursday January 19, 2017

Trump Effect On Cargo

Trump Effect On Air Cargo

     Will President-elect Donald Trump’s new trade policies affect air cargo if enacted? I believe the answer is YES. But the real question is whether the effect will be positive or negative. With any major change, the outcome can be mixed.
     This article is not intended to analyze world trade. I leave that to the experts and the individual carriers, but a few numbers are needed to set the stage for my thinking. In 1950, the U.S. represented over 20 percent of world trade, with all the countries of Europe at about 35 percent and the total Asian countries at less than 15 percent. In 2014, the U.S. dropped to under 14 percent, with the total for Europe up a little, to about the 37 percent, and Asia doubling to over 30 percent with China replacing the U.S. as the number one country in world trade. Now, we can argue all day about which agency provides the most actuated numbers, but what is most important is the trend. Based on this trend, it appears that President-elect Trump’s policies are aimed at evening the flow and restoring the U.S. to its former levels.
     In my view, the effect today on world air cargo is a tossup. The one thing that appears likely is that the TRUMP EFFECT, as I call it, will either reduce the volume of world trade as the industries are incentivized to produce more products in the U.S. that are sold in the U.S., or it will simulate efficiencies and lower costs of production in the U.S. and make those products more competitive in a global market. Personally, I’m betting on both, which will restore the U.S. percentage of world trade back to the 20 percent level. Will there be strong resistance from its trading partners, especially Asia? Most certainly, but the question is whether this new administration will stick to their doctrine.
     So will the TRUMP EFFECT expand air cargo or reduce it? If it hurts the U.S. trading partners’ economies to have more products sold in the U.S. be produced in the U.S., it will surely reduce air cargo at least in the short term. If the U.S. corporate tax is reduced to 15 percent from about 45 percent and the U.S. puts higher duties on imported manufactured items, air cargo will drop. But if more people in the U.S. become employed with good salaries and therefore buy more products and the economy doubles, as some people are predicting, while U.S. manufactured goods benefit from “economy of scale” and improved efficiencies, that could make U.S. manufactured goods more competitive globally, which will increase air cargo. But, that will take longer to occur.
     The TRUMP EFFECT, if it does significantly improve the U.S. economy, will benefit the large U.S. combination carriers. However, short term it could hurt the U.S. Charter Cargo Airlines, which will reduce the U.S. non-integrator air cargo fleet. These carriers will no doubt try to operate more aircraft for the integrators by lowering their prices and looking closely at ways to operate in markets where short term air cargo could increase, like between Europe and Asia. This may lead to the new incoming administration looking closely at its present open skies policy and could easily cause them to focus on the fairness of giving non-U.S. carriers free access to most U.S. cities in return for merely the same access in the non-U.S. carrier’s country. So, will the TRUMP EFFECT change the present view of open skies and look at its fairness similarly to the way they say they will look at renegotiating many of the U.S. trade agreements? Will they demand U.S. carriers get more out of the deal, like 5th and 6th freedom rights in other parts of the world in return for access to the many U.S. markets? I know that many of you are starting to shake your heads at this point, but the second and third order effects of policies this new administration has promised deserve careful analysis.
     Finally, what will the TRUMP EFFECT have on CRAF (Civil Reserve Air Fleet)? The U.S. government is most likely the largest air cargo shipper in the world and grants U.S. carriers access to their business based on their commitment to let the government have access to the carriers’ aircraft in various times of need. A vital component of the CRAF program is the non-schedule U.S. air cargo fleet. As stated above, the legacy carriers should benefit from the TRUMP EFFECT, but will the non-schedule air cargo fleet? These carriers will face a server challenge if the volume of trade (air cargo and integrator business) to and from the U.S. goes down, even short term. And this will have an effect on CRAF.
     In closing, there is concern about consumer prices in the U.S. skyrocketing and the effect on the U.S. dollar, which will benefit countries like China and Russia. But a valid argument can be made that the U.S. economy will strengthen because of more jobs, due to the lowering of the corporate tax rate and its planned effect on the expansion of manufacturing in the U.S. This could put U.S. manufactured goods on par with imported products. This coupled with a strong government effort in backing product development, quality improvements, and innovation can prove to be a winning formula. But if all this strengthens the U.S. economy and the U.S. dollar increases in value, will this make U.S. products too expensive globally?
     There are many more second and third order effects that can be discussed, like the effect on Europe if more of their budget must go to defense with Present-elect Trump’s stance on NATO, a possible continued reduction in oil prices with fracking and coal more usable in the U.S., the effect of renegotiated trade agreement on countries’ economies, etc. These can all influence air cargo volumes. But, in the end, this incoming U.S. administration appears committed to restoring a fair balance of trade for the U.S., and those who predict the outcome correctly will greatly benefit.
Bill Boesch

Bill BoeschMr. Boesch started his career in global transportation and logistics in 1965 working for Seaboard World Airlines. He later joined Flying Tiger Airlines and Emery Worldwide. Mr. Boesch then left Emery to become Pan American World Airways’ Senior Vice President where he headed both Passenger and Cargo Sales and Operations. He left Pan Am to lead American Airlines’ Cargo operation and retired from AA in 1998. Under his direction American became a world leader in the air cargo and logistics business.
     Mr. Boesch was involved in projects for the U.S. Government throughout his airline career and became more active after retiring from AA by serving as Director of U.S. Aviation Policy for the White House Commission on Aviation Security. He also has worked for the U.S Government in high level logistics and security projects which included terrorist attack planning and analysis. Mr. Boesch was part of the extensive on site planning and support of the Iraq drawdown, involvement with the Afghanistan operations, and has worked on all aspects of the Civil Reserve Air Fleet (CRAF) from both an airline and government standpoint.
     Mr. Boesch has also served as Chairman of the International Air Transport Association (IATA) Cargo Executive Subcommittee in 1996 and 1997, Vice Chairman of IATA’s Cargo Committee. Mr. Boesch served on the Board of Directors of Air Cargo Incorporated, Air Cargo International, The International Air Cargo Association (TIACA), Envirotainer, Cargo Logistics Solutions, Deutsche Post/DHL Global Mail, al Seqir and consulted for major US companies including Flight Safety.
     Mr. Boesch is the recipient of numerous awards including the Lifetime Air Cargo Achievement Award, the Ellis Island Medal of Honor and various awards from the U.S. Department of Defense.
     Mr. Boesch is presently continuing his work for the U.S. Government and heads up The Council For Logistics Research.

If You Missed Any Of The Previous 3 Issues Of FlyingTypers
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Uplifting Reports Of Cargo Surge In 2017
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