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Feirce Competition On China Routes  
User currently offlineUPS Pilot From United States of America, joined May 1999, 871 posts, RR: 3
Posted (14 years 4 months 1 week 4 days 1 hour ago) and read 1366 times:

July 17, 2000

THE ATLANTA JOURNAL and CONSTITUTION
ATLANTA, July 16, 2000 -- But the nation's largest parcel delivery service is finding that moving packages is a lot easier than moving Washington.

"Big Brown" as the company is commonly called, is vying for a lucrative air route to China against another Atlanta-based powerhouse, Delta Air Lines, as well as American Airlines and Polar Air Cargo, an upstart freight carrier based in California.

The U.S. Department of Transportation is expected to announce the winner this summer after it has sifted through the 1,711 documents filed by the competitors during the court-like eight-month process.

Nothing less than $1 billion -- and that's just to start -- is at stake with the selection of the new China carrier. As the Chinese economy continues its exponential expansion, that amount is certain to grow.

This marks the first time in the DOT's history that the agency will have to decide between a freight carrier and a passenger airliner for an air route.

With that kind of money and market up for grabs, it is no surprise that the airlines involved have hired the kind of help that works in Washington: influence.

American has secured the support of Chicago Mayor Richard M. Daley, the brother of former Commerce Secretary William Daley, who is now engineering Vice President Al Gore's presidential bid.

Delta has hired former Kentucky Sen. Wendell Ford, a key Democratic leader on aviation -- not to mention Haley Barbour, the former Republican Party chairman and one of Washington's most powerful lobbyists.

Polar Air is hoping that big money won't mean much at DOT headquarters. The company has just one lobbyist in Washington, and he is an employee of the 6-year-old company. Polar has spent so little on lobbying that it is not even required to file a report with Congress, as all of the other companies are required to do.

Under the department's own rules, the decision is supposed to be devoid of lobbying and politics.

So why are the well-known contenders spending so much money and hiring so many big names to sell their pitch?

"I'll leave that for them to answer," said Kevin Montgomery, Polar's sole man in Washington. "Our hope is that the Department of Transportation will make their decision in a fair and equal manner based on the merits of the case. I don't think it's fair to ask for anything different."

But Montgomery is also a pragmatist. He knows that millions are being spent by the competition to lobby lawmakers. "It's unfortunate that they think they could buy votes, buy legislation, buy a decision in this case," he said, referring to the culture of lobbying in Washington.

Despite the moratorium on lobbying the DOT, nothing prohibits the carriers from hitting Capitol Hill and talking to the White House.

The result, by most accounts, has been an unparalleled lobbying campaign or an air route.

UPS, the competitors say, has taken the fight beyond the point of fair, using strong-armed tactics and raising questions about its competitors to win over Congress.

Fair or not, UPS' strategies so far seem to be working: At present, 350 members of Congress, 37 governors and more than 80 local officials are siding with the $27 billion-a-year company, according to letters filed with the DOT.

"It's kind of unfortunate that we are pitted against our good friends and good neighbor here in town, Delta, but it's a situation that is created by the process," said Jim Kelly, chairman and chief executive officer of UPS. Kelly said that he can't imagine a UPS employee saying anything negative about the competition.

UPS has been salivating over the possibility of flying directly to China ever since Beijing signed an agreement with the United States last spring to allow one new carrier and as many as 10 round-trip flights per week starting in April 2001.

It wants to expand its Asian market, a place where business is up by 50 percent over the last year. While archrival FedEx Corp. flies directly to mainland China, UPS must land in Hong Kong and then rely on another carrier to transport packages. That gives FedEx a competitive advantage over UPS in that FedEx's shipments arrive a full day earlier.

FedEx, United Airlines and Northwest Airlines already fly directly to China and are lobbying the White House and Capitol Hill for a sliver of the new batch of flights.

The UPS campaign was the first to get started in the competition for the air route. To make its case, the company hired former U.S. Trade Representative Mickey Kantor and economist Joseph Stiglitz, both close allies of President Clinton -- and it has sought the advice of several former transportation officials on how best to present its case.

UPS has blanketed Capitol Hill with thick packets of information about why the DOT should choose a cargo carrier instead of a passenger carrier. Trade trumps tourism is the theme.

By promising to hire 1,200 American workers if it wins, UPS has been able to portray itself as the "labor candidate" in this high-stakes contest. Teamsters President Jimmy Hoffa has written to Transportation Secretary Rodney Slater in support of UPS even though the union fought against normalizing trade with China.

"You either take part or you get taken apart," said Tad Segal, director of public relations at UPS's Washington office, explaining how deals are struck in Washington. "It's been a good, clean fight. Everyone is slugging as hard as they can."

That's not how the competition sees it.

When Delta canvassed Capitol Hill for support, it found that Big Brown had already been there.

D. Scott Yohe, Delta's senior vice president of government affairs, said the lobbying has been ferocious.

Yohe said lawmakers have told him that UPS has portrayed Delta as not "really interested" in winning the route, that the airline's bid was "just a throwaway application."

UPS's own campaign marketing materials paint a somewhat disparaging portrait of its passenger airline competitors. An entire chapter in one book is devoted to how Delta and American have not shown "any commitment to build an Asian network."

UPS denies that it misrepresented the competition to lawmakers. "One of the things that occurs in these environments is people misinterpret," Segal said. "We didn't discount anyone."

Responding in their own document filed with the DOT, Delta said that "UPS has submitted a library of exhibits in a futile effort to obscure the critical weaknesses of its proposal."

The lobbying around the China route has been "extremely frustrating," Yohe said.

"I think it was a scorched earth kind of approach," Yohe said. "They decided they had to pull out all the stops. "

Delta's own economic study of the flight route found that it would generate $622 million for the nation, $20 million for the city of Atlanta alone. Last year Delta grabbed an opportunity to work with China Southern, a Chinese company, to put its passengers on its planes.

Delta is proposing daily service from New York's John F. Kennedy International Airport to Beijing with continuing single-plane service from Beijing to Shanghai. All flights would originate and terminate in Atlanta, the airline's primary hub. In addition, Delta would offer nonstop service three times per week between Portland, Ore., and Beijing with continuing single-plane service to Shanghai.

Polar Air's Montgomery said UPS's lobbying prompted calls to him from legislators. "We received calls from the Hill asking if we, too, were applying because UPS apparently said they were the sole cargo applicant," Montgomery said. "They invited us to explain our position."

The rivals for the air route aren't the only ones questioning UPS's methods.

FedEx takes exception with the way UPS portrays the company as having a monopoly on direct cargo flights to China. UPS delivers to China through a Chinese carrier.

FedEx has been flying its packages directly to China since 1995, when it bought Evergreen International Aviation Inc., the only airliner allowed to fly cargo to China.

"We have a competitive advantage based on a smart decision we made years ago," said Greg Rossiter, a spokesman for FedEx. "If UPS finds itself trailing FedEx and envious of our competitive advantage and the service we provide, then UPS has only itself to blame."

UPS contends that since FedEx is the only cargo hauler to fly directly to China, it has a monopoly in the direct express delivery service. It plays that up in its application materials. One chapter in its materials is entitled: "FedEx has a Self-Admitted Monopoly in the Direct Express All-Cargo U.S.-China Market."

In the chapter, UPS suggests that the lack of competition in China has driven up the cost of package delivery by as much as 37.3 percent. It also uses FedEx's own Super Bowl commercial to make the point that FedEx advertises that it is "the only express shipper with direct routes from China."

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