Air Freight Strains U.S.-Japan Ties
When Flying Tigers dedicated its new $4-million cargo terminal at the New Tokyo International Airport last Friday, a Shinto priest blessed the building to prevent evil spirits from lurking within.
But evil spirits are not the Los Angeles-based cargo airline’s main worry these days. A much more serious concern to U.S. carriers flying the Pacific--and Flying Tigers in particular--is a new Japanese all-cargo carrier, Nippon Cargo Airlines.
Although it has not yet flown as a scheduled airline, NCA has become a trade issue between Japan and the United States. And Flying Tigers stands to lose the most if the controversy escalates.
“Everyone in Flying Tigers is concerned about NCA,” said Paul A. Stokes, 57, vice president for Flying Tigers’ Asia and Australia operations, in an interview at the airline’s Tokyo headquarters.
NCA applied last Feb. 29 to the United States for permission to operate six weekly round-trip cargo flights between Tokyo, San Francisco and New York. But the U.S. Transportation Department has not given the necessary approval.
Hisayoshi Terai, executive vice president of NCA, told foreign correspondents in Tokyo on Thursday that his airline would ask the Japanese government to retaliate by stopping Flying Tigers’ service if the United States does not issue it a permit to start service on April 1. Japan’s Transportation Ministry, however, would decide both whether to retaliate and whether to apply retaliation to one or more of the American airlines, he added.
The stakes for Flying Tigers are high. It currently has 45 scheduled cargo flights a week between Japan and the United States and another 43 a week between Japan and other destinations in Asia. Its share of the U.S.-Japanese market is 35% to 40%--Japan Air Lines accounts for about 50%. Flying Tigers’ sales in the market amounted to $662 million last year, 56% of its total.
Hopes for 10% to 12% of Market
Yasushi Yamawaki, assistant manager of corporate planning for NCA, said Thursday that NCA hopes to capture about 10% to 12% of the U.S.-Japan air cargo market, a market that has been expanding by about the same percentage in recent years. He said Flying Tigers’ share of the market is likely to decline but not severely.
“From our viewpoint, Flying Tiger is acting like a ‘crybaby’ in overreacting to new competition,” he said.
Lawrence M. Nagin, 43, Flying Tigers’ senior vice president-administration and general counsel, explained recently that the airline’s chief concern about NCA is over its ownership--a consortium of six major Japanese shipping companies, 19 Japanese freight-forwarding companies and All Nippon Airlines, Japan’s biggest domestic air carrier. The freight forwarders between them control 90% of Flying Tigers’ truck transportation in Japan, Nagin said.
“The vertical and horizontal integration of NCA with the major freight forwarders and shipping lines in Japan ensure that NCA need not compete for business but instead can rely on the relationship it has established with these firms to fill its airplanes,” Nagin said.
Cyril D. Murphy, 43, Flying Tigers’ vice president for international and governmental affairs, said: “The Big Six Japanese shipping companies control most of the surface shipping between the U.S. and Japan. Now they are planning to go after air freight.”
Yamawaki said Thursday that the total holdings of the 19 freight-forwarding companies in the new firm amount to only 6%, while the six steamship companies and All Nippon combined own another 6%. The rest of NCA’s stock is held by 48 other companies.
He said the freight-forwarding companies are engaged in “fierce competition” among themselves and would hardly sacrifice their own profits to divert shipments from Flying Tigers to NCA, especially since Flying Tigers now offers a superior service schedule, with more flights to more cities in the United States.
Terai added that “Flying Tigers or NCA or the shipper or the consignee can determine whatever trucking company they wish to use. There is no way to control it. These trucking companies are not subsidiaries of NCA.”
Buying Three Planes
NCA officials also have argued that they are helping the U.S.-Japanese trade balance, which was $36.7 billion in Japan’s favor last year, by buying three Boeing 747-200Fs at about $100 million apiece. Terai said Thursday that, because of the cost of the planes, his airline cannot afford to wait beyond April 1 to start U.S. service.
“The cost of paying for these aircraft is several millions of dollars a month,” he said, and contracts for ground handling services, leasing of cargo warehouses and a cargo-control computer system, as well as salaries for a staff of 200, have added to “substantial start-up and operation costs.”
Noting that a U.S.-Japan aviation treaty obligates each government to permit service by airlines that are designated by the other government, Terai said that “the U.S. government’s unreasonable and unnecessary delay in issuing a permit already has severely affected NCA’s ability to market its service” and that “any further delay will cause great economic damage to NCA.”
At the request of the Reagan Administration, the U.S. International Trade Commission has launched an investigation into the current and prospective conditions of competition in cargo transport services between the United States and Japan. A public hearing is scheduled April 9 at ITC headquarters in Washington. The Japanese are pushing for a decision before then, while Flying Tigers officials argue that the United States cannot decide without the study’s results.
The NCA issue also will be discussed here, for the fifth time, in bilateral aviation talks scheduled Monday to next Friday. Terai said the issue should be resolved at those talks. “Otherwise,” he said, “aviation relations between the two countries might deteriorate.”
The U.S. Transportation Department, Terai said, has asked Japan to provide compensation in the form of additional air rights for American carriers flying to Japan in exchange for approving NCA’s application. But no agency of the U.S. government has yet cited the ITC study as a reason for the delay, he added.
Terai said the U.S. Transportation Department had brought up the lengthy delay that United Airlines faced in obtaining a Japanese permit to start service to Tokyo in April, 1983, and said he could understand their feelings on this point.
UAL’s plan to serve Japan was held up for more than six years while an interim air agreement signed by the two governments in June, 1982, was being negotiated. Bilateral negotiations for a permanent pact have dragged on with no known results since early 1983.
Terai argued that, in delaying the NCA application, the U.S. government is in effect helping Japan Air Lines to strengthen its air cargo business.
JAL’s opposition delayed Japanese government approval of NCA’s entry into the international cargo business for five years. Although the company was set up in 1978, it won Japanese government sanction as an international cargo carrier only in August, 1983, in a decision that overturned a traditional Japanese Transportation Ministry policy of maintaining a monopoly for JAL as Japan’s only international carrier.
Executives of NCA have said publicly that they regard the start of U.S. service as the first step toward transforming the airline into a regularly scheduled international passenger carrier. So far, the Transportation Ministry has allowed NCA to fly only charter flights overseas.
Meanwhile, even as Flying Tigers’ staff celebrates the opening of the new terminal, they see in it a symbol of U.S.-Japanese trade strife:
“The opening of the new terminal unfortunately tends to illustrate one of our problems in doing business in Japan,” Nagin said. “While Japan Air Lines has cargo facilities in which they are allowed to handle both import and export freight, Flying Tigers is restricted in its new terminal to handle only export freight. Flying Tigers’ import freight (cargo brought to Japan from abroad) must be handed over to a Japanese handling company.
“U.S. carriers are not given the same treatment JAL or Japanese companies are given.”
