“One big reason trade is no longer growing rapidly is the rise of protectionism,” said FedEx Chairman and CEO Frederick W. Smith today in his address at the International Air Transport Association (IATA) World Cargo Symposium. “History shows protectionism – whatever the justification – stifles competitiveness, innovation and consumer choice.”
In his analysis of the global air express industry, Mr. Smith detailed how fuel efficiency in modern aircraft, along with the Internet marketplace, has changed the airport-to-airport air cargo market.
While shipments of smaller packages and light freight continues to grow, he noted, ‘most national customs systems are far behind the needs of this market and will impede its growth if systems are not modernized.”
Given that the overall picture for world trade is a concern in the short-term, there is much potential for streamlining regulations, and improving economic growth and job creation with upcoming trade initiatives, like the Trans-Pacific Partnership (TPP) with Pacific Rim countries, and the Transatlantic Trade and Investment Partnership (TTIP) with Europe.
He called on the industry to actively support new U.S. trade treaties in order to deliver the kind of innovative services required by today’s global markets.
The following are excerpts from his speech
Transformation through Innovation is a great theme for this symposium because today the air cargo industry is in the midst of a profound transformation that requires new ways of thinking about our future. However, that future is unlikely to be analogous to the industry’s ―Golden
Age of the 1990s and early 21st century.
To understand where we’re going, it’s important to review the macroeconomic and technological factors that led to air cargo’s spectacular growth.
The growth of trade and air cargo
Surveying the devastation of World War II, American leaders like Secretary of State Cordell Hull believed the integration of world markets would be essential to rebuild countries ravaged by the war.
The General Agreement on Tariffs and Trade, or GATT, was the result, and America’s opening its markets was a key element in the recovery of Germany and Japan, (slide 2 – Asian Tigers) in the emergence of a strong European economy, and in the rise of the
―Four Tigers‖ of Asia—Hong Kong, Taiwan, Singapore, and Korea, where significant investments in manufacturing in the 60s, 70s and 80s lifted tens of millions out of poverty.
Trans-Pacific and Asia-to-Europe air shipments of electronics and auto parts were integral to the development of sprawling supply chains throughout the world.
The backbone of these networks was the Boeing 747F, introduced in 1971, with economics that were a quantum jump over previous generations of air freighters.
It’s important to note that America’s post-World War II embrace of free trade was based on geopolitical considerations as much as commercial calculations.
Accordingly, the United States’ relatively open markets were often sacrificed to more mercantile practices of some trading partners.
As normalized relations were restored with China, and the GATT morphed into the WTO, the stage was set for the most phenomenal economic transformation in the modern era—the export-driven rise of China and its accession in 2001 to the WTO.
Hundreds of millions of people were brought out of poverty in China and other nations such as India and Brazil that embraced more liberal global trade in the 1990s and early 21st century.
High value-added products—particularly electronics—saw air cargo grow on average at two and a half times the rate of world GDP for two decades.
Post–recession realities
Unfortunately, a number of factors that produced this success story have reversed since the Great Recession of 2008
China’s fantastic economic growth has spawned significant wage increases that dampen exports, and China has adopted an ―Indigenous Innovation‖ policy which favors local companies over foreign competitors despite WTO prohibitions to the contrary.
Partly as a result, China’s logistics costs are about 20% of GDP vs. 9 to 9.5% in the U.S. Such inefficiencies make it hard for the Chinese economy to evolve to a more consumer-driven economy vs. their current model based on exports and infrastructure investment.
One big reason trade is no longer growing rapidly is the rise of protectionism, not just in China but around the world. Over the last few years almost every trading nation has instituted policies that permit greater regulatory intervention in the trade processes—often justified by overzealous security considerations. Unfortunately, in many other cases, the protectionism is overt and politically driven. History shows that protectionism—whatever the justification—stifles competitiveness, innovation, and consumer choice.
This news is courtesy of www.fedex.com
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