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Issue: 1043 Date: 8/19/2010

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Decision time looming on China Hub project

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        Decision time looming on China Hub project

        By Tim Logan, St. Louis Post DispatchAugust 12, 2010

        The region's bid to land Chinese air cargo flights is getting down to crunch time.

        After two and a half years of talks and planeloads of trade delegations crisscrossing the Pacific, the political and business leaders pushing the project say they will know by New Year's if their efforts will take off.

        A key study they hope can prove a business case for the flights is halfway done, and so far, said Mike Jones, chairman of the Midwest China Hub Commission, signs are pointing in the right direction. Yet another round of talks is coming up, with Missouri Sens. Christopher "Kit" Bond and Claire McCaskill set to lead a group to Beijing this month. A few weeks later, top Chinese aviation officials and airline executives are due to visit St. Louis to launch a joint study of just how this might work.

        "At that point we're going to be in real discussions on the mechanics of this," Jones said. "And I think we'll know if we have the framework of a deal by year's end."

        Helping Lambert's case is a strong rebound in global freight traffic. Through June, 28 percent more goods had flown through the skies this year than last, according to industry trade groups, and demand is now back above prerecession levels. Trade between Asia and North America is predicted to grow faster than average in the years to come, and flights heading west - key to Lambert's effort and U.S. job creation - are expected to make up two-thirds of that growth, says cargo leasing company Atlas Air Worldwide.

        "The volume of activity we need is there," Jones said. "What we have to do is sell St. Louis."

        But that, experts say, comes with steep challenges in an air cargo industry accustomed to flying international freight into established hubs such as Chicago, Atlanta and Dallas.

        "A significant amount of export cargo" will have to be won away from those airports if Lambert hopes to succeed, according to a preliminary report by the Hub Commission's consultants, Houston-based Aerostrata LLC. And industry experts say that will be difficult.Cargo 'Travel agents'

        Most freight, especially overseas freight, is in the hands not of airlines but of freight-forwarding firms - sort of the travel agents of the cargo industry - who rent space on both passenger and cargo planes to get goods from Point A to Point B. The more international flights an airport has, said Mike Webber, a cargo consultant based in Overland Park, Kan., the more options those forwarders have. That gives the big hubs - with their taxiways full of foreign-flagged planes - a huge built-in advantage.

        "The reason these forwarders are so beholden to the traditional gateways is not because they like them. It's because they know that if, say, Lufthansa cancels a flight at 8 o'clock, there's another flight at 2," Webber said. "That's hugely important to them."

        A smaller airport with no international passenger flights is simply less attractive, Webber said. And that's what Lambert is now.

        One way to make it more appealing is to offer a faster turnaround. Aerostrata's study points to quicker customs clearance - 30 minutes, on average at Lambert compared to eight hours at O'Hare - and less runway traffic as strengths for St. Louis.

        That can help, said Ken Bukauskas, associate director at the cargo consulting firm LeighFisher. Lambert flights will struggle to compete on price, he predicted; competition helps shippers get lower rates at gateways. But when you are shipping flowers that wilt by the hour, a quicker trip has value, too.

        "Shippers and consumers will be the ones who decide if this is going to work," he said. "If they have to pay too much more, the market will tell you."

        To get a sense of what the market thinks, Lambert has formed a "Shippers Council," about 15 area companies that do a lot of business in China, such as Emerson Electric, Monsanto and Caterpillar. They may not use the cargo flights much themselves - many manufacture in China or export goods too heavy and low-cost to go by plane - but several said they see big benefits for the region.

        "We think it could help our customers," said Wendell Knehanz, director of product management for St. Charles-based Novus International, which makes additives for livestock feed. "There's a real opportunity for added meat trade between the U.S. and China."

        Indeed, when asked what might fill those planes heading west, many Lambert supporters point to food.

        Where's the beef?

        China's growing middle-class is hungry for high-quality meats, the kind raised in the U.S. farm belt. Flying them from Lambert makes a lot of sense, said Rex Ricketts, director of the commercial agriculture program at the University of Missouri Extension. But even that comes with a major hurdle: Right now, China won't import beef from the U.S.

        Talks are under way about changing that. Some experts say it will require the U.S. opening its borders to Chinese chicken.While those negotiations wind on, Ricketts is leading a study of what a Chinese market for U.S. beef might look like and how Missouri farmers might be able to tap into it.

        "It's very interesting and complex," he said. "One thing we do know is that we have to have planes fly to make this happen."Whatever happens with the project, it will likely start slow, said airport director Rhonda Hamm-Neibruegge, probably two to four flights a week.

        That may not be the economic engine that some of the cargo project backers have pitched it as, but, she said, it is an essential first step. Carving out a niche for Lambert in the cargo business and hitching St. Louis more firmly to the world's fastest-growing economy are things that don't happen overnight.

        "The thought would be we can prove our case," she said. "And then as growth continues, hopefully we have a chance to capture more of it here."

        But even if building a hub takes time, Jones says he knows the region can't study it forever. State and local governments and business groups have already spent millions on the effort. If it is not going to work, they have to be willing to cut bait and move on. That is what makes the next few months so crucial.

        "At this point, we're in a sprint. This will not be a marathon," Jones said. "We won't be coming back here three years from now saying 'Oh, we're almost there.'"

 
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