BATTLING THE RECESSION
Most of us experienced a huge drop in business in December and as January and February are traditional tough months, many of us are hoping for the best as we move into March, but in our hearts know December 2008 could be what we may experience throughout 2009. Trading patterns and volumes will change significantly during the year. Anyone still believing in China and Asia in general may be in for a rude awakening and those who are heavily invested there; get ready to write off all your money now. The days of China being an industrial export powerhouse are numbered.
At CII, we are bracing ourselves that what happened in December will carry through for all of 2009. In January we made some virtually unpalatable decisions. We had to cut our overhead to match the gross profit of December and this we did. We believe our business in 2009 will be at the most 80% of 2008. For the first time ever we laid off 20% of our staff, reduced benefits and some of us had to also wear a 20% reduction in salary. Although, politicians tell us small business is the backbone of America’s economy and President Obama is going to help our small business by granting loans through the banks, this won’t happen for non-asset based companies like CII. Banks just don’t lend on receivables, a balance sheet showing a significant difference between assets over liabilities is the only criteria banks will look at. CII even in its best years never produced a pre-tax profit of 5% on revenue. So for us anyway, we must look within to survive these tough times. We have to work doubly hard at making sure our receivables remain minimum 90% current. This we are striving to do.
Sometimes when I hear negotiations taking place with the airlines, I cringe at how tough the team is. We know the gross profit percentage margin now must be higher than in 2008. We hold on to the philosophy that we can only negotiate with the airlines when we actually have the freight on the dock. If we marginally cost a shipment, then we have to work harder pinning down the carrier to a rate where that booking becomes a profitable shipment. This strains or stretches relationships to the limits, but we know we must remain profitable in order to survive. We scrutinize and double scrutinize every shipment be it 50kgs or 500kgs. I only wish we had adopted this policy sixteen years ago, but when times are good, it is easy to fall into the trap, “We will make it up on the next shipment.”
In spite of all the doom and gloom we may face in the months ahead, we will remain focused on our niche market, the South Pacific. For us to expand our services/destinations into the unknown could lead us into trouble because it will distract us from the “main chance”. 95% of our business is export airfreight, with 80% being the South Pacific. We are convinced that there is still opportunity for us to expand into Australia especially and already we have conducted one sales campaign and next month another executive will be spending two weeks in BNE, SYD and MEL knocking on every door leaving no stone unturned.
What we are doing at CII is probably similar to what is currently going on within the industry. If we had decided to do nothing and bury our heads in the sand, our doors would close before the end of the year. I believe it may be at least two years before we see a pick up in the global economy and when that happens, I think markets other than China will see it happening first. As far as America is concerned I think European trade will grow back to the levels of the eighties and nineties and I have absolute faith in the South Pacific. Central and South America may replace China as the source of supply for textile piece and finished goods.
I believe the small to mid-sized forwarder has the ability to weather the storm over its larger rivals. Just as President Obama has placed faith is small business to play a major role getting us out of this recession and not big business, I will make a bold prediction now and say there will be two large multi-nationals to go broke and be out of business before year’s end.
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