China towns: Memphis, Dallas, Indy among cities looking to land Chinese cargo
St. Louis Business Journal
October 29, 2010
By Greg Edwards
Meetings with a delegation from China next week may determine whether St. Louis becomes a major hub for Chinese air cargo.
"It's a technical delegation to assess our capacity for handling air freight, everything from boarding the planes to getting it to its destination," said Jason Van Eaton, executive director of the Midwest-China Hub Commission. He and Dick Fleming, president and chief executive of the Regional Chamber & Growth Association (RCGA) and a commission member, met this week with Guoqiang Yang, the Chinese consul general in Chicago, in preparation for the visit by the delegation, which includes representatives from Chinese airlines.
The agenda includes meetings at the World Trade Center, the RCGA and with importers, exporters and freight forwarders, as well as inspections of Lambert-St. Louis International Airport and its infrastructure, said Rhonda Hamm-Niebruegge, Lambert's director and another commission member.
"These meetings will provide Lambert Airport the opportunity to answer some questions from the Chinese delegation and really show off why St. Louis will be a great spot for the Midwest-China Hub," said U.S. Sen. Claire McCaskill, who along with U.S. Sen. Kit Bond, was among the early proponents of the idea. "I think these meetings will get us one step closer to the goal of exporting Missouri and Midwest goods through the hub."
The idea originated in 2007 with Paul McKee, who developed NorthPark, a 550-acre redevelopment east of the airport, and his attorney and partner, Steve Stone of the Stone Leyton & Gershman law firm.
"Paul McKee asked me one day if I thought China might be interested in our regional airports as a base for their growing air cargo activities. He asked me because he knew that I had a family and personal relationship with an Englishman named Stephen Perry," Stone said. "Stephen has conducted billions of dollars of trade between China and the West."
Stephen initially resisted but came around after a trip to St. Louis and a meeting with McKee. It was McKee's ambition for the region and Stephen's extraordinary understanding of China and international trade that led to the thinking behind the economic and transportation initiatives that are being called the "Big Idea."
"The Big Idea" that St. Louis is proposing to the Chinese is to use Lambert as a hub to land their own fleet of cargo planes instead of piggybacking on existing flights at much busier cargo destinations, such as Chicago, Memphis and Louisville, said Mike Jones, the chairman of the commission, which is funded by local governments, business groups and a federal grant. Those cities and others are trying to land more business with China.
"The reality is, nobody is our competition for this," he said. Under his scenario, Lambert's lack of traffic works to its advantage.
But air service consultants elsewhere said St. Louis isn't likely to become a major player in air cargo precisely because of the competition.
Chicago has a desirable mix of passenger and cargo flights, with multiple airlines and destinations, plus international customs experience. Memphis is home to FedEx, and it's the largest cargo operation by volume in the world. Louisville is the second-largest cargo handler in North America and home to UPS' air-sorting hub. Then there's Indianapolis, Dallas/Fort Worth and Atlanta, all way ahead of St. Louis. And that doesn't include Anchorage, Miami, Los Angeles and New York, the coastal giants in cargo. Even Kansas City, Toledo and Des Moines airports handle more cargo than Lambert, according to 2009 statistics gathered by the Federal Aviation Administration.
St. Louis even has competition locally. The struggling MidAmerica St. Louis Airport, opened in 1998 adjacent to Scott Air Force Base in Illinois at a cost of $331 million, has been trying for years to land cargo business from China or anywhere else. A test flight from Shanghai landed at MidAmerica in August, and St. Clair County officials said they expect regular air cargo service will begin soon. "With the start of this new trade route, we believe the overall cargo operations here at MidAmerica will really take off," St. Clair County Chairman Mark Kern said in a statement.
But MidAmerica has had its hopes dashed before. From time to time, it has secured limited passenger service and for a while was an import destination for flowers, but nothing has lasted. It was built as a cargo airport and was named a port of entry in 2006. It has racked up millions in losses, despite multiple trips by local officials abroad; St. Clair County taxpayers lost $7 million last year alone.
MidAmerica got a bit of good news recently when Boeing Co. announced plans to lease the airport's 50,000-square-foot cargo terminal to work on components for its defense programs. Still, taxpayers will contribute $3.5 million and abandon $3 million worth of refrigeration units left over from the failed flower deal.
All of that -- the local competition, the regional competition, the national competition -- is irrelevant to St. Louis' proposal, Jones said. "The Chinese want to be a bigger player in the air freight industry. Most of their goods now are on non-Chinese airlines, and they have to land somewhere."
Missouri's exports through the first two quarters of 2010 totaled $6.3 billion, a 35 percent increase over the same period in 2009, according to WISERTrade data. The largest foreign market for Missouri's exports is Canada, which purchased $2 billion in goods and services during the first two quarters of 2010, according to the Missouri Department of Economic Development. Mexico ($573 million) was next, followed by China ($470 million), Japan ($313 million), Singapore ($286 million), and Belgium ($245 million).
Air cargo shippers generally look for three things in airports: the most flights, the most destinations and as many carriers as possible, including a combination of dedicated cargo carriers and passenger carriers with belly space. "Those are all things St. Louis doesn't have," said Mike Webber, whose Webber Air Cargo Inc. in Overland Park, Kan., does air cargo consulting for John F. Kennedy International Airport, Los Angeles International Airport and Miami International Airport, among others.
"I stipulate to all of that," Jones said. "Ours is a totally different concept." His position as chairman of the commission is unpaid and in addition to his full-time job as senior policy adviser to St. Louis County Executive Charlie Dooley.
Mike Boyd, president of the Boyd Group International, an aviation consulting firm based in Evergreen, Colo., dismisses the idea of significant cargo operations from China or anywhere else coming to Lambert or to MidAmerica. "It's a solution looking for a problem," he said.
"Cargo is expensive to move by air, so the only reason you do it is to save money," Boyd said. "Why spend the money to ship to St. Louis, where it can sit for three days and then get shipped to where it's needed. Why not ship directly to New York or Chicago?"
In the Midwest, the air cargo conversation begins and ends with Chicago, Webber said. "They are so far ahead of anyone else in the region," he said.
In addition, Chicago is handling less cargo today than it did 10 years ago because of contraction in the industry and a decline in U.S. manufacturing, so it has plenty of excess capacity and the ability to add more, Webber said. In 1999, O'Hare had 1,481,671 metric tonnes of air cargo, including international, domestic, freight and mail. By 2009, that total had fallen to 1,047,917 metric tonnes. Lambert's numbers went from 131,145 metric tonnes in 1999 to 110,551 in 2009.
Jones said he believes the odds of landing a deal with China have improved to better than 50-50. St. Louis and China delegations have each made multiple trips back and forth since China's Ambassador Zhou Wenzhong visted here in February 2008.
Dan Muscatello, managing director of cargo and logistics at Landrum & Brown, an aviation consulting firm in Cincinnati, said the obstacles are many and formidable, but St. Louis has certain advantages. "It has the runways, plenty of capacity, one of the best locations in the country for interstates, and a strong political alliance."
In addition, Muscatello said, some of the manufacturing that fled the U.S. may return as wages rise in China, making manufacturing there more costly. "You may see a repatriation," he said, "so there is the possibility of trying to build a manufacturing and distribution network in a central location in the U.S."
"That's a critical component of our strategy -- it's not just the airlines, it's the ancillary investment that comes with it," Jones said.
In February 2009, the U.S. Department of Commerce approved a 764-acre expansion of the Foreign-Trade Zone around Lambert to include NorthPark; Hazelwood Commerce Center, an industrial park on nearly 170 acres; Lindbergh Distribution Center, a 528,000-square-foot warehouse in Hazelwood; and a 75-acre airport-owned tract adjacent to the airport. Dooley and St. Louis Mayor Francis Slay recently asked the U.S. government for a duty-free designation, allowing more companies to save on importing and exporting.
In addition, St. Louis County has applied for priority visa processing, which Tim Nowak, executive director of the World Trade Center and a commission member, said he expects will be approved in 2011.
Complicating matters for everyone is an escalating U.S.-China trade skirmish. President Obama imposed steep tariffs on Chinese-made tires last year, and China retaliated with a large tariff on U.S. poultry.
Team China at the table
Zhou Wenzhong, 65, attended the University of Bath and the London School of Economics in the U.K. Zhou served as ambassador of the Chinese Embassy to the United States from 2005 until February 2010. Li Zhaoxing, 70, is a graduate of Beijing University. He is currently chairman of the foreign affairs committee of the National People's Congress, a post he has held since 2008. Wang Qishan, 62, graduated from Northwest University. Wang has served as director of several leading banks, including the China Investment Bank and the China Construction Bank.
Midwest-China Hub Commission members
Mike Jones, chairman, senior policy advisor to county executive, St. Louis County Rich McClure, vice chairman and CEO, UniGroup, representing Civic Progress Dan Mehan, vice chairman, president and CEO, Missouri Chamber of Commerce Steve Ehlmann, county executive, St. Charles County Rhonda Hamm-Niebruegge, director, Lambert-St. Louis International Airport David Kerr, director, Missouri Department of Economic Development Dick Flemning, president and CEO, Regional Chamber & Growth Assoc. Chris Chung, president and CEO, Missouri Partnership Denny Coleman, president and CEO, St. Louis County Economic Council Tim Nowak, executive director, World Trade Center Joe Pestka, administrator of aviation, Missouri Department of Transportation
