ABOUT THE AUTHOR
Stanley Chao is Managing Director of All In Consulting
(allinconsult.com), assisting companies in their China
business strategies and is the author of “Selling to China: A
Guide for Small and Medium-Sized Businesses.”
revenue stream, will not
see the double-digit growth
potential we saw in earlier
years. So, look to reduce
China-US services while
expanding operations and
routes to the emerging
countries in south-east Asia
as Western companies change
their suppliers.
Regional isolationism
However, while China-US
logistical services will be
reduced, it doesn’t mean
that China should be totally
ignored. On the contrary:
China is commencing its One
Belt One Road initiative and
building highways, ports, rail
lines and other infrastructure
to economically link over 70
countries throughout Africa,
the Middle East, Asia and
Eastern Europe.
This new, modernised Silk
Road, along with a potential
long-term US trade war, will
create two regional trading
zones. One zone will link
China as the hub to all of
Africa and Eastern Europe, the
Middle East and a mixed bag
of countries in South America
and Asia. The US will serve as
the centre of the other regional
trading alliance, along with
Canada and Mexico, most
of South America, Western
Europe and pro-US Asian
countries. These regional
zones will create new routes
for air logistics companies. I
predict in the next ten years,
routes from China to places
like Uzbekistan, the Ukraine,
Pakistan and northern
Africa will multiply as China
continues to pour billions
of dollars into infrastructure
investments and loans to its
One Belt One Road partners.
This is all part of China’s
plan to divest its interest away
from the US and into emerging
will also help the air logistics
industry. FedEx and UPS
have had limited licences to
operate in China without a
joint venture partner since
2014 but I fully expect China’s
State Postal Bureau to expand
both FedEx’s and UPS’ service
offerings in China that will
include more cities, more
B2C and B2B coverage, and
the potential in the next few
years to operate their own
independent aircraft fl eet
within China for domestic
deliveries.
If talks fail…
If Trump and Xi can’t come
to an agreement in March,
then expect an all-out tariff
war. We could potentially see
three major fall-outs that will
negatively affect all Western air
logistics and even those with
no interests in China.
For one, equipment costs
will go up, including ground
support equipment and parts,
and the steel and raw materials
to make the equipment come
from China. So, expect to
pay 20-40% more for dollies,
aircraft service stairs, jack lifts,
tugs and tractors and container
loaders. And these higher
costs could last for years until
new vendors and suppliers are
found, tested, and certifi ed.
Second, the Chinese
will engage in what I term
“bureaucratic harassment.” I
consulted for some Norwegian
salmon farmers in 2011 when
Chinese customs offi cials
“accidentally” left thousands
of pounds of Norwegia salmon
to rot in aircraft cargo holds
while waiting for customs
inspections. This was done in
retribution for the Norwegian
Nobel Committee awarding
the peace prize to the Chinese
dissident Liu Xiaobao in 2010.
Customs delays, rotting
countries where it can wield
both political and economic
infl uence.
China’s domestic market
One of Trump’s biggest gripes
about China is that the central
government doesn’t allow
Western companies to freely
operate in many of its vertical
markets. The banking, oil
and gas, telecommunications,
automobile and insurance
industries are all either closed
to foreign companies or
heavily restricted.
China, however, has
recently given in to some of
Trump’s demands. Next year,
for example, Tesla will be the
fi rst 100% foreign-owned
automobile manufacturer
in China. The other foreign
players, like Ford and BMW,
only have minority-owned
joint ventures. We’re also
seeing signs that China will
allow foreign insurance
and credit card companies
and banks to operate more
independently in China.
Trump’s sabre rattling
If Trump and Xi
can’t come to an
agreement in March,
then expect an allout
tariff war
Stanley Chao
The opinions and views given by the
writer in this editorial are personal and
do not necessarily refl ect those of any
institution or corporate body.
fresh produce and seafood,
unwarranted customs penalties
and fi nes and delayed aircraft
landings and take-offs will be
the new norm.
Lastly, while China will
probably give more domestic
market access to FedEx and
UPS in the coming months
and years, China could just as
easily cancel their domestic
licences if the tariff war
transitions into a 1960s-style
cold war. Aside from FedEx and
UPS, MacDonald’s, Starbucks,
Apple and Nike could all lose
their China operating licences.
But cooler heads will prevail
I don’t mean to scare you with
the above worst-case scenarios.
It shouldn’t happen. It won’t
happen. History has shown
us that the leaders of both
countries will come to their
senses, leave their egos at the
door, and do what’s best for
their country.
Both countries are at
the end of their game of
chicken and ready to make
real, relationship-changing
proposals. I fully expect
China to offer just enough
concessions to allow both
presidents to declare their
countries winners in this tariff
skirmish. It will be a true winwin
situation.
But let this be a lesson for
all companies doing business
in China: stick to your longterm
goals but react to shortterm
situations and events.
Don’t let any small blips affect
your original plans and views
on China. I told companies
after the Tiananmen Square
riots in 1989 to stay the course.
The companies that listened,
instead of going with their
knee-jerk decisions, are now
mostly doing very well in
China.
Stay the course.
www.airlogisticsinternational.com February 2019 31
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