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US-China airline quarrel exacerbates supply shortage for cargo

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The air service dispute between the U.S. and China over resuming passenger air travel will have spillover effects for airfreight shippers and other areas of trade as the relationship between the countries deteriorates, industry and legal experts say.

Limiting flights from each country perpetuates the shortage of cargo capacity resulting from the extensive shutdown of passenger operations due to the coronavirus outbreak and sets the stage for potential Chinese retaliation against other industry sectors.

The dustup can’t be viewed in isolation, according to China watchers, but as part of the Trump administration’s effort to rebalance trade relations in the U.S.’s favor and its new ideological concerns over civil liberties in Hong Kong.

 “You could say the decision to not grant [U.S. carriers] the number of flights they asked for is a response to the pandemic raging in the U.S., but it’s not that simple. There are clearly other political undercurrents here,” said Ashley Craig, co-chair of the international trade and logistics practice at the Venable law firm, in a phone interview.

The U.S. Department of Transportation this month said it would limit Chinese passenger airlines to two round-trip flights per week between China and the U.S. after Chinese aviation authorities slightly eased restrictions for 95 international carriers to allow them one route each per week — the same right Chinese airlines have enjoyed since March 26.

The U.S. originally planned to ban the four primary Chinese carriers — Air China, China Eastern, China Southern and Xiamen Airlines — and two smaller ones after the Civil Aviation Authority of China (CAAC) slow-rolled petitions by Delta Air Lines (NYSE: DAL) and United Airlines (NASDAQ: UAL) to resume some service in early June. 

United applied to fly from San Francisco to Shanghai and Beijing, and from Newark, New Jersey, to Shanghai, while Delta is seeking Shanghai service via Seoul, South Korea, from Seattle and Detroit. 

U.S. carriers began drawing down flights to China by early February in response to the coronavirus outbreak and ceased all passenger operations there by March 12. Chinese carriers continued to operate a limited schedule of up to 34 flights by that time — a marked change from the 325 weekly scheduled passenger flights by carriers of both nations at the start of the year.

A March ruling by CAAC effectively froze out U.S. carriers from reestablishing routes. Although it allowed airlines to operate one flight per week on a single route, they had to use March 12 as their baseline capacity limit, which was zero for U.S. carriers. 

The revised Chinese rules don’t go as far as U.S. carriers want, and officials are concerned they are riddled with conditions that make it difficult to operate even limited services. China requires airlines to take the temperature of all passengers midflight and will suspend a route for one week if the number of passengers who test positive for the coronavirus after arrival reaches five. Foreign carriers will be allowed to increase flights to two per week if they go three weeks with no passengers testing positive.

The DOT says China is violating terms of their bilateral air transport agreement by giving favorable treatment to Chinese carriers and that its reciprocal order is aimed at ensuring fair and equal access. The order, which doesn’t apply to all-cargo flights, cuts in half the number of weekly flights by Chinese carriers and requires CAAC to notify the U.S. of which carriers will operate the two permitted flights.

Air cargo constraints

How the U.S. and Chinese flight restrictions might impact air cargo is unclear. 

Passenger flights were extremely limited even before the U.S. restrictions, so any cuts worsen existing shortages of aircraft space for cargo that have led to transport delays and  forced companies to pay huge premiums to move their goods. Producers, retailers and their logistics partners heavily rely on leftover bellyhold space in passenger planes because there aren’t enough pure freighters to handle all e-commerce and freight shipments, and they offer frequent, scheduled flights. Lower-deck capacity helps keep airfreight rates down. 

Until the restrictions are lifted, U.S. and Chinese airlines won’t be able to add flights as travel demand increases in the coming weeks and months.

“Any curtailment of flights is not only regretful, but denies shippers of essential options to move their cargo in both directions,” Brandon Fried, executive director of the Airforwarders Association in Washington, said in an email.

The Chinese carriers have significant belly capacity with their twin-aisle passenger aircraft and also operate freighters to major gateways such as Los Angeles, Chicago, San Francisco and New York. Air China and China Southern are the ninth- and 10th-largest cargo carriers in the world, based on volume. Both carriers also operate dedicated all-cargo aircraft — Air China has eight Boeing 747-400s and China Southern two of them plus a dozen 777-200s.

Delta and United have been making extensive use of passenger aircraft as auxiliary freighters since March to help make up for lost passenger belly capacity.

Air cargo professionals said the bilateral air transport restrictions could lead to more transfer of cargo in secondary hubs such as Tokyo, Seoul or even Taipei, Taiwan.

“The impact could be dramatic and will change the lane segments, depending on what the Chinese government is allowing. Will that increase the need for capacity into those hub markets?” said Michael White, president of Cargo Network Services, the U.S. subsidiary of the International Air Transport Association. He even raised the possibility of affected airlines transshipping via Canada.

Conflict escalation

The conflict over airlines comes amid what some foreign policy experts are calling a cold war with China. Venable’s Craig said the DOT’s decision can’t be disconnected from the administration’s overall stance toward China.

On the surface, China is simply trying to protect against the reimportation of the coronavirus from the U.S., which is now the global hotspot in terms of confirmed cases and deaths. And it’s not lost on Chinese officials that President Donald Trump early this year implemented restrictions on travel from China, when the virus was beginning to spread there. 

The president has publicly criticized China’s handling of the initial outbreak in Wuhan and blamed it for transmitting the disease to the U.S. 

Previously, the Trump administration waged a three-year trade war with China until an uneasy, partial truce to ease import restrictions was reached in January. It also has ramped up export controls and scrutiny of Chinese-listed companies, and direct investments in the U.S. to prevent security-related technology transfers and potential espionage. 

Talks on a full-scale trade deal are on ice while the Trump administration waits to see how the Phase One agreement is implemented. Trump is insisting China uphold purchasing commitments for U.S. goods even though the global recession caused by coronavirus lockdowns has depressed economic activity and trade.  

Meanwhile, the Trump administration is considering whether to revoke special customs and travel treatment from Hong Kong. The State Department declared the territory no longer enjoys semi-autonomous status because Beijing recently imposed a national security law that would criminalize anti-government activity and enable it to increase surveillance of the population following months of pro-democracy demonstrations. Under U.S. law, Hong Kong’s special trade status can be revoked if its autonomy is diminished. 

Currently, Hong Kong exports are exempt from U.S. tariffs on China, although the level of exports to the U.S. is very low compared to the rest of the world. Possibly more damaging to trade would be any limits on technology sales to Hong Kong.

Craig, based in Washington, said the timing of the air traffic dispute is bad for importers because the exemptions for two tranches of tariffs on Chinese goods are set to expire within the next six weeks and there is no guarantee the U.S. trade representative will renew them.

If stalled talks lead the U.S. to further restrict Chinese airlines at some point, China might be tempted to seek retribution by blocking access to U.S.-flag ocean carriers such as Matson Inc. and APL, Craig suggested. That would send a message without significantly impacting Chinese exports because those carriers offer limited service to China. Retaliation against U.S. cargo airlines, such as FedEx Express and UPS, is unlikely for the same reason: The Chinese economy is trying to reboot and shippers like medical supply manufacturers and e-commerce giant Alibaba need airfreight to get to overseas markets.

Craig said the U.S.-China relationship is going backward and the Chinese may be willing to abandon the January trade deal in response to perceived slights from the U.S.

(Click for more FreightWaves stories by Eric Kulisch)

Source: https://www.freightwaves.com/news/us-china-airline-quarrel-exacerbates-supply-shortage-for-cargo

Automotive

Rivian adopts mobile service model for maximum convenience

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Rivian Service promises to provide a proactive and personal approach to mobile vehicle service. Rivian seems to have developed an intricate mobile service model to make vehicle care more convenient for R1T and R1S owners.

Over-the-air updates will support Rivian’s mobile service model to optimize a vehicle’s performance continuously. Most of the over-the-air updates will take place at night, making it more convenient for owners.

The company’s mobile service will also be backed by Rivian Remote Care, enabling the company to perform comprehensive diagnostics from afar. With Rivian Remote Care, technicians can proactively identify most vehicle problems even before the owner notices them.

Credit: Rivian

“We’re remotely diagnosing vehicles and pre-ordering parts if needed. By the time we arrive for your mobile service appointment, we’re ready to resolve your issue on the spots,” said Edwin, a Rivian Service technician.

Rivian will have a fleet of mobile service vans ready for deployment at any time. Rivian mobile technicians can attend to calls at an owner’s home, workplace, or anywhere service is needed within the United States and Canada. Rivian plans to expand its mobile services as it reaches other markets.

Rivian technicians will also bring vehicles that need extensive care to service centers and return them to owners afterward. The company will provide a loaner to owners while their cars are cared for at the service center. Rivian has not specified what vehicles will be used as loaners.

Rivian plans to open over 40 service centers in the United States and Canada soon. More service centers are planned for the future as Rivian grows. The company has also established a network of Rivian-owned and Rivian-certified collision centers for bodywork and exterior damages.

Rivian Service seems to go hand-in-hand with the company’s warranty coverage. Rivian’s warranty system is also quite intricate. It includes a Comprehensive Warranty, a Battery Warranty, a Drivetrain Warranty, and a Perforation Corrosion Warranty.

The Teslarati team would appreciate hearing from you. If you have any tips, email us at [email protected] or reach out to me at [email protected].

Rivian adopts mobile service model for maximum convenience

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Lucid Motors, Rivian sued by Illinois car dealers for direct sales

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Lucid Motors and Rivian were sued by the Illinois Automobile Dealers Association, the Chicago Automobile Trade Association, and some individual franchised auto dealerships in the state for selling vehicles directly to consumers.

The numerous plaintiffs are accusing both Rivian and Lucid of violating state laws that require new vehicles to be sold through franchised dealerships. The direct-to-consumer sales platform has become popular with electric car companies, especially Tesla who has never operated through dealerships. While each of the aforementioned automotive companies does have showrooms in operation to display their products, they do not have salespeople or sales managers who negotiate prices with customers. The costs are the same for everyone, a strategy that has alleviated a lot of stress from the car buying process.

In May 2019, the dealers, the Secretary of State, and Tesla entered an agreement that would consent to the automaker obtaining no more than 13 dealer licenses in Illinois. This allowed showrooms to sell vehicles to customers, but it only applies to Tesla and not to Lucid and Rivian.

The new lawsuit against Rivian and Lucid alleges the Secretary of State of “turning a blind eye to Rivian’s unlicensed sales operations,” according to the Chicago Tribune.

“We have no choice but to file this lawsuit, both to protect consumers as well as the hundreds of franchised dealers across the state who contribute to the local economy,” Pete Sander, the Illinois Automobile Dealers Association President, said. Sander represents more than 700 auto dealers that operate over 2,300 franchises across the state.

Credit: Lucid Motors

The Illinois Vehicle Code and the Illinois Motor Vehicle Franchise Act were cited in the lawsuit. These mandate that all vehicle sales to the public “must be made through licensed and independent franchised” dealers.

Lucid operates out of California and has its main production facility in Arizona. The company recently opened a sales studio in Oak Brook, a suburb of Chicago that is home to several large corporations like Ace Hardware and Blistex. However, Rivian is based in Normal, Illinois, and the lawsuit seems to affect it more than Lucid simply because of the company’s base location.

The Illinois Attorney General’s office issued “an informal opinion” last summer that stated new automotive manufactures are not expressly required by law to establish franchised dealerships to sell their cars. This gives companies like Rivian and Lucid the opportunity to sell their products directly to customers unless the lawsuit filed by the numerous plaintiffs moves forward. A spokesperson for the Secretary of State’s office said they would review the complaint when it comes to their office.

Lucid Motors, Rivian sued by Illinois car dealers for direct sales

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Elon Musk’s Starlink Beta meets opposition from India’s industry body

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It appears that Starlink is facing a challenge in India, a country expected to receive coverage from the satellite internet system sometime next year. 

The opposition against Starlink was initiated by the Broadband India Forum, which has written a request to the Telecom Regulatory Authority of India (TRAI) and the Indian Space Research Organization (ISRO). The forum asked the bodies to block SpaceX from pre-selling the beta version of the satellite internet service in the country. 

As noted in a report from The Economic Times, TV Ramachandran, the industry body president, argued that SpaceX does not have the necessary license or authorizations from the government to offer its beta services in India. 

The Broadband India Forum represents companies such as Amazon, Facebook, Google, Hughes, and Microsoft. In its request, the forum asked the bodies to “urgently intervene to protect fair competition and adherence to existing policy and regulatory norms.” It also noted that SpaceX seemed to be “non-compliant to existing guidelines” in India.  

Explaining further, the forum added that Starlink does not have its own ground stations in the country, nor does it have the satellite frequency authorization from the ISRO and the Department of Telecommunications (DoT). According to the forum, these are needed for a company to be allowed to offer beta services in India. 

SpaceX, for its part, has not issued a statement about the matter. In a statement to the Times, a senior TRAI official has stated that the issue brought up by the Broadband India Forum “would be examined.”

SpaceX is currently offering pre-orders for the beta version of Starlink in India for a fully refundable deposit of $99 (about Rs 7,000). The satellite internet service is poised to compete with other satellite communication services such as the Bharti Group and the UK government-owned OneWeb, which is also expected to launch its services sometime in 2022. Competition may also be coming in the form of Amazon’s Project Kuiper, which is yet to provide internet services, even in beta form. 

Don’t hesitate to contact us for news tips. Just send a message to [email protected] to give us a heads up.

Elon Musk’s Starlink Beta meets opposition from India’s industry body

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Elon Musk to become board member of Endeavor Group Holdings: SEC Filing

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Tesla CEO Elon Musk will join the Endeavor Group Holdings Board of Directors ahead of the group’s Initial Public Offering, a filing with the Securities and Exchange Commission says.

Musk, 49, currently spends his time with Tesla, SpaceX, Neuralink, and The Boring Company, but will join the Endeavor board in the coming months, the filing says. He is currently listed as a “Director Nominee.” However, the filing describes what Musk’s eventual position will be.

“Mr. Musk is currently a director nominee and will become a member of our board of directors at or prior to the pricing of this offering,” the filing says. “Mr. Musk was selected to serve on our board of directors because of his professional background and experience running a public company, his previously held senior executive-level positions, his service on other public company boards and his experience starting, growing and integrating businesses.”

Endeavor includes several well-known brands under its parent company, including talent agencies WME and IMG, and premier mixed martial arts promotion Ultimate Fighting Championship, most commonly referred to as the UFC. The UFC was purchased by Endeavor’s WME-IMG joint venture in July 2016 for $4.2 billion.

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Endeavor had attempted to launch an IPO in the past but pulled the plug on the effort at the last minute in the Fall of 2019 when market conditions were unfavorable. The company may have sensed it wouldn’t reach its fundraising goal, according to Deadline, and opted to wait for better economic circumstances.

It also skipped 2020 as a possible date for its IPO due to the Coronavirus pandemic. Despite pulling in less of a profit compared to 2019, CEO Ari Emanuel stated the company remained resilient despite the tough circumstances and is attempting to initiate an IPO in the coming months.

“As challenging a year as 2020 was, it underscored the strength, creativity, and resilience of our people who mobilized time and time again in the face of overwhelming odds,” Emanuel wrote in the S-1 filing. “We made difficult decisions but worked as a team to find creative solutions and best position the business for the future.” The company reported $3.5 billion in revenue last year, down $1.1 billion from 2019.

The filing for the possible Endeavor IPO indicates the company wants to raise $100 million, but this number could ultimately change.

As long as Endeavor can raise the correct capital and it avoids any other dicey economic uncertainties, it will trade under the “EDR” ticker symbol on the New York Stock Exchange.

Elon Musk to become board member of Endeavor Group Holdings: SEC Filing

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