[Congressional Record Volume 145, Number 163 (Wednesday, November 17, 1999)]
[Extensions of Remarks]
[Page E2405]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

[[Page E2405]]



             COMPETITION IN THE U.S.-CHINA ALL-CARGO MARKET

                                 ______
                                 

                          HON. JOHN S. TANNER

                              of tennessee

                    in the house of representatives

                       Tuesday, November 16, 1999

  Mr. TANNER. Mr. Speaker, earlier this year, the United States and the 
People's Republic of China completed a new civil aviation agreement. 
That agreement allows for one additional air carrier from each country 
to serve routes between these two nations. It has recently been 
suggested by some that Federal Express has a ``monopoly'' in the China 
market and that the Department of Transportation should grant another 
all-cargo carrier, such as UPS, the authority to serve China as opposed 
to expanding passenger carrier or Federal Express' service in this 
market. I believe that argument is meritless.
  Federal Express initially applied to DOT in early 1992 for the 
authority it now holds. They pioneered U.S.-China express all-cargo 
services by acquiring an initial allocation of only 2 flights a week, 
under the old, more restrictive agreement. Only two other carriers, 
American International Airways and Evergreen International Airlines 
applied at that time. No other carriers even bothered to apply.
  The Department selected Evergreen to operate the route and gave 
Federal Express backup authority. In early 1995, Federal Express and 
Evergreen jointly applied to transfer the primary authority to Federal 
Express because of problems experienced by Evergreen in its efforts to 
develop the market. At that time, DOT did consider, in response to 
comments filed by DHL, another air express carrier, whether the award 
to Federal Express would create a monopoly for express services. DHL 
was the only carrier to offer comments during these 1995 proceedings.
  In its order approving the transfer from Evergreen to Federal 
Express, the Department concluded that Federal Express would not have 
monopoly power in the market, stating: ``Moreover, in this case, we 
found that there are alternative means of transportation. Not only does 
DHL have the opportunity to use U.S. and Chinese carriers in the 
market, Chinese carriers on both their combination and all-cargo 
services and the U.S. carriers on their combination services, but there 
are also third country carriers in the market available for use.''
  Indeed, the market is already very competitive. Due to the historic 
imbalance in the number of flights DOT has allocated to passenger and 
air cargo services, U.S. passenger carriers, Northwest and United, can 
offer more freight capacity than Federal Express. Furthermore, I 
understand that both UPS and DHL already offer a wide range of express 
services through their joint ventures with SINOTRANS--the government-
owned China National Foreign Trade Transportation Group Corporation. 
DHL has represented that it controls, with the help of its joint 
venture relationship with SINOTRANS, 35% of the China express market 
and UPS operates an extensive ground network in China. In addition, the 
U.S. Postal Service offers U.S-China express and parcel services. There 
are also two Chinese airlines, and at least 18 other foreign airlines 
that can offer U.S.-China cargo services, including some of the world's 
largest airlines like British Airways, Japan Air Lines and Lufthansa.
  Because of the limited number of flights that it has been allocated, 
Federal Express today accounts for only 11.5% of the air express volume 
from the U.S. to China, and 4.8% of that volume in the opposite 
direction. That is hardly a monopoly.
  Federal Express has pioneered the development of markets throughout 
Asia for the benefit of U.S. exporters. It was difficult in the early 
stages, but Federal Express made China a high priority in the 
development of its Asian network. Their commitment to this market has 
helped ensure that U.S. companies can even expand their trade and 
presence in China's major markets. In many of the Asian markets, such 
as Hong Kong, Japan, and the Philippines, other express carriers 
entered the market much later to compete with Federal Express. In each 
of these cases, Federal Express' rates were the same before as they 
were after the others entered the market.
  Federal Express can only operate 8 flights per week today, increasing 
to 10 on April 1, 2000. It currently is the only incumbent U.S. airline 
that lacks the frequencies necessary to offer even two daily flights. 
Due to its limited number of frequencies, Federal Express operates a 
complex but incomplete schedule in the major markets it services in 
China. For example, it can offer daily service to Beijing in one 
direction only--westbound from the U.S.--with only three eastbound 
flights from the capital. It operates only five flights a week to and 
from Shanghai, and it is able to offer only eastbound service from 
Shenzhen.
  Trade is the key to our competitiveness and prosperity in the global 
marketplace. Federal Express must be able to continue to develop this 
market to provide U.S. exporters the transportation services they 
require to be competitive. Federal Express has the presence in China to 
make this goal a reality in the near term.
  The attempt by others to justify their belated interest in this 
market by characterizing Federal Express as a monopoly is not supported 
by the facts. The U.S.-China market for air express cargo services is 
competitive today.

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