It has been just over a month since the ‘game-changing’ Goods and Services Tax—the new centralized tax on goods and services that has eliminated the numerous different rates applied by various states across the country—launched in India.

Taking A Second Look

      While the ‘One Nation, One Tax’ received the initial welcome (although IATA and quite a few freight forwarders wanted more clarity about some sections of the tax) it appears now that the government will have to strategize fixing the anomalies.
      The PHD Chamber of Commerce and Industry (an apex organization with a geographical span covering 12 States of the country, the PHD Chamber acts as a catalyst in the promotion of industry, trade, and entrepreneurship) has pointed out that if GST were levied on air exports, it would be “totally unfair” and would “stifle the growth of air cargo.” Pre-GST, freighters did not pay any tax, but now 18 percent GST has been levied. In fact, the Chamber has gone ahead to declare that India would be an “exception” if it applied the 18 percent tax since freight is not taxed anywhere else in the world.

Business in Leaps & Bounds

      “At a time when the domestic civil aviation industry anticipates that India will be among the tenth largest international freight market by 2018, with domestic Indian air cargo increasing by 7.3 percent as per current estimates over the 2016 rate, subjecting international freight at 18 percent GST is totally unfair as it will stifle the growth of air cargo,” the Chamber said. It went on to ask: “Why would the government of India want Indian exporters to pay an extra 18 percent GST on freight and make our goods non-competitive in the international market?”

Deepening Paperwork Jungle

      Echoing similar sentiments, the Express Industry Council of India (EICI represents a cross-section of members drawn from international and domestic express companies) has said that while the GST has reduced logistics costs, its members were concerned about the requirement of e-waybills for the movement of goods. This, according to EICI’s Chief Operating Officer Vijay Kumar would not only reduce the savings, but also increase logistics costs and delays.
      The e-waybill that has been proposed by the government demands a transporter to log into the GST network and generate an e-waybill providing a vehicle number from the time a shipment is picked up. Every time a vehicle is changed, e-waybills have to be generated until the shipment is delivered to the consignee. On average, a delivery cycle necessitates transshipment at least three to four times. So, instead of reducing the paperwork, it would increase manifold. 
      The EICI COO said that since the Express Delivery Services (EDS) offered door-to-door, time definite services for carriage of small packages comprising urgently needed aircraft parts, medical equipment, electronics, auto components, textiles, garments, etc., speed was “the differentiator in comparison to other modes of transport” and delivery time was generally “measured in hours instead of days.” The operations demanded use of the hub and spoke model with multiple transshipments as well as multiple forms of transportation including air, road and rail. So, demand of separate e-waybill would act as speed breakers.

Impacts Countrywide

      Others who have been hit hard by the introduction of the GST are members of the Indian diaspora, especially in the Middle East. Before GST, these Indians (a very large percentage are low-paid, blue-collar workers) could send up to $320 worth of goods tax-free to India. After GST, goods worth only $35 can be sent tax-free. As a result, the first few weeks after GST saw huge loads stuck at Indian airports for lack of clearance.

Stuck In Transit

      The Dubai-based Federation of Indian Cargo Agents (Middle East) was quoted saying that blue-collar workers had been using the door-to-door cargo services for sending goods home as gift items. With the 41 percent revised tariff, 300 tonnes were stuck at Delhi, 100 tonnes at Mumbai, and another 100 at Bengaluru.
Tirthankar Ghosh

     It feels as though major international developments are happening faster and faster these days, with tremendous potential to impact global logistics. To stay ahead of the game in this unprecedented time, we must ask ourselves: how will these global politics affect the airline industry?
      In my previous articles, I have argued that airlines have never faced such an uncertain environment before. 

Changing Approach To Trade

      After decades of promoting globalization and free trade, American policy has shifted dramatically, seeking to put an end to “unfair trade,” promote the domestic market, and end the past “appeasement policy” to international treats.
      If successful, this shift in policy will have major implications for the U.S. economy.
      A more domestically-oriented economy could propel the U.S. dollar upward, which typically triggers an increase in imports as foreign goods become relatively cheaper. That traditional rebalancing may be impossible due to the renegotiation of trade agreements and increased tariffs, and what then? 
      Will the Federal Reserve Bank intervene?

Business Adjusts

      Business is already adjusting to the new environment, attempting to predict the impact of policy changes on their business models.
      The U.S. economy is currently very healthy, with the stock market at an all-time high and unemployment at near record lows.
      Despite the political rhetoric, most economic indicators show continued growth under the Trump administration, and U.S. airlines are already benefiting.

String Employment

      The July 2017 job report from the Department of Labor indicated higher than expected employment growth along with increases in wages, indicating that the labor market is the strongest it’s been since the financial crisis.
      Strength in the domestic economy is boosting stocks, with the Dow Jones Index breaching 22,000 on the positive news. Stock market gains have stoked consumer demand, increasing American wealth by about $4 trillion, translating into greater buying power for international travel, vacations, and home buying and entertainment.  

Readies Tax Reductions Big Jump 2018

      Corporate tax reduction, a priority for the Trump administration, could add further stimulus to the economy.
      If the Trump administration’s pro-growth tax-cutting plan is fully enacted, 3 percent-plus GDP growth may be right around the corner.
      In an already strong labor market, many see this quickly translating into full employment and increased wages.
      If that materializes, the bump we’re experiencing today will look like small potatoes compared to the expansion set to kick in in 2018-2019.

The Challenge To Airlines

      Though the growth outlook is very positive for U.S. airlines, the current environment is not without its challenges.
      Rapid growth requires expanding fleets with modern aircraft, hiring more experienced pilots to fly them, and bringing in qualified A&P mechanics to keep them safely operating.
      Current estimates indicate that U.S. airline demand for qualified pilots is at approximately 6,000 per year, with supply less than half of that.
      Likewise, the industry faces a shortage of qualified mechanics. 
      These personnel shortages threaten to slow airline growth and trigger a bidding war for talent, further decreasing the U.S. supply of new pilots.
      In other words, if Americans who want to be commercial pilots sign on with non-U.S. airlines who have lower flying hour requirements (250 hours vs. the 1,000 to 1,500 hours for U.S. pilots), look out for the squeeze.

Air Cargo Meet The Future

      The U.S. non-integrator cargo fleet has an additional problem. 
      New economic policies, such as “Made in America – Sold in America,” will likely reduce international air cargo to and from the U.S. 
      For example, Apple recently changed its operations in anticipation of the rule, eliminating assembly in China in favor of building iPhones for the U.S. market inside the United States from locally produced components.
      The Apple move, if expanded by other companies, could take a huge bite and have a substantial negative effect on trans-Pacific cargo demand, which together with the pilot/mechanic shortage increases pressure on non-integrator cargo carriers.

Uncertain Trump Policy

      Another airline concern is the uncertainty over the Trump administration’s policy on trade. 
      President Trump championed renegotiating the rules to secure “Fair Trade,” which could impact cargo volumes between the U.S. and China, America’s largest trading partner. Likewise, increasing tension with North Korea is driving anxiety about regional trade, potentially disrupting trade with South Korea, America’s 6th largest trading partner. The follow-on effects of these developments may include a rebalancing of trade with other Asian nations, or a decrease in overall trade levels, and air cargo carriers will have to evaluate the likelihood of each. 
      The trade question in Europe is also complicated.
      As relations worsen with Russia as a result of many factors and the approval of additional trade sanctions, the level of cargo from Russia will decrease, though given the relatively low current level (Russia is only the 30th largest trade partner of the U.S.), the swing is unlikely to be large.
      Germany is a more significant player—it is America’s 5th largest trade partner, and President Trump’s policy of reducing our trade deficit with Germany could mean substantially less air freight ahead.

Euro Gains Ground

     These developments are taking place in a climate of uncertainty around currency values, and specifically the prospect of a strengthening U.S. dollar.
      The Euro has steadily gained ground on the dollar since the beginning of April 2017 and represents about a 14 percent rise from the multi-year low seen at the end of December 2016. All this points towards rising confidence in the Eurozone and weakening expectations of positive economic and monetary stimulus action in the U.S.  
      With the strong numbers we’re seeing in the U.S. economy, it remains to be seen if this is a long-term trend, or if the tide will turn in currency markets.
      As with all these other developments, airlines will need to weigh the risks and plan for every contingency.
Bill Boesch

Mr. 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 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 U.S. 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.

To Read Part 1 of This Series, Click Here
To Read Part 2 of This Series, Click Here
To Read Part 3 of This Series, Click Here
To Read Part 4 of This Series, Click Here
To Read Part 5 of This Series, Click Here
To Read Part 6 of This Series, Click Here
To Read Trump Effect—India Walks Softly Carries Big Stick, Click Here
To Read Trump Effect—Implications Of A Trump Trade War, Click Here
To Read Trump Effect—Trump Across The Pacific, Click Here

Beyond The Obvious

      ““Suppliers can only respond effectively to changes and deal with cost constraints if they are supported by the supply chain and the transportation products deployed therein,” Daniel wrote.
      Daniel developed a multimodal product, which he applied in such situations.
      The product met the need for both rapid response to changes in the marketplace and cost containment.
      Aside from the utilization of freight forwarding products, he advocated the understanding of trade agreements and customs legislation, both of which in certain circumstances further reduce cost within the chain.

How To Work Trade & Customs

      Daniel’s dissertation showed how South Africa’s customs legislation and the country’s trade, development, and cooperation agreement with Europe could bring about significant cost and liquidity improvements.
      In addition to focusing on responsiveness and cost, Daniel systematically introduced an additional dimension to the management of supply chains: that of environmental protection.
      Finally, Daniel also pointed out how growing opportunities for exports into African countries could be maximized in a South African retail context.

 

Supply Chains Are The Real Competitors

      “Every supply chain is driven by what an organization intends to achieve in the marketplace.
      “In view of both market- and cost-related pressure it is becoming ever more important for freight forwarding companies to understand their clients’ market-related requirements.
      “These determine the strategic direction of a supply chain and consequently should dictate the use of those freight forwarding products that support the supply chain strategy and, in turn, the goals to be attained in the marketplace.
      “In this context, it must be mentioned that the basis for future competition is supply chain versus supply chain and not organization versus organization.
      “All organizations within that chain are co-dependent as they serve the same end consumer.
      “Supply chains and the forwarding products deployed therein must hence be aligned with the end consumer.
      “I applied this methodology by developing and positioning initiatives and freight forwarding products for South African retail clients, which are based on how the retailer aims to maximize value to the end consumer, which in turn leads to competitive advantage.”

Thinking About The Shipper

      “Retailers are continually faced with both market- and cost-related pressure in their pursuit for competitive advantage.
      “As a result, customer value must be maximized and costs minimized at the same time.
      “It is thus becoming ever more important for freight forwarding companies to understand their clients’ market-related requirements. “These determine the strategic direction of a supply chain and consequently should dictate the use of those freight forwarding products that support the supply chain strategy and, in turn, the goals to be attained in the marketplace.”

“Young Turk” Daniel kicks back a bit and considers the road ahead.      Named a FIATA Young International Freight Forwarder of the Year (YIFFY) a couple of years ago said a lot about Danny.      His career trajectory speaks volumes for both Danny and FIATA.      FIATA is unique as the one global transportation organization that puts youth, talent and the future on the half shell at the very top of its agenda every year at its Annual World Congress.      YIFFY is not just another ordinary empty awards event. Here thoroughly talented young freight forwarders deliver future look presentations to conferees.      FIATA Word Congress 2017 is set for Kuala Lumpur October 4-8.

Giving Forwarding Fresh Perspective

      “After the FIATA award,” Daniel said, “I gradually was given increased responsibility within the UTi Cape Town retail team.
      “In 2013, a major South African retail chain was added to the customer portfolio and I started building up a retail control tower in Cape Town, which among other things standardized the ways UTi manages retail accounts to create synergies within the team.
      “At the same time, I started developing a standardized Purchase Order Management process for imports from the APAC region into South Africa.
      “With that, I developed a set of performance metrics that manages the inbound supply chains for the UTi retail customers by exception only,” Daniel told FlyingTypers.
      “In 2016, UTi was acquired by the Danish 3PL DSV.
      “Last October 2016, I was offered a position by DSV in the Netherlands, which I accepted.
      “I am now busy developing a Purchase Order management product with standard features, which we plan to roll out within the global organization during this current FY.
      “Since November 2016, I have lived in Eindhoven in the Netherlands,” Daniel said.
      “Moving away from Cape Town was challenging, but the new opportunity is a once-in-a-lifetime chance, which I am very glad I took.
      “I am ever grateful for the encouragement from FIATA and the opportunity to grow and excel in the exciting transportation industry,” said Daniel.
Geoffrey