|Alan Larson, Under Secretary of State|
for Economic, Business, and Agricultural Affairs
Remarks, International Transportation Symposium
U.S. Department of Transportation
Washington, DC, October 10, 2000
How the New Economy
Ministers and distinguished guests. Thank you for the opportunity to kick off a discussion on the challenges and opportunities that lie ahead for all of us in the new global information economy.
We are here today, and for the next few days, to talk about best practices -- lessons for tomorrow. I would like to touch briefly on some of the challenges we face in a networked world and the opportunities that exist to maximize the availability and benefits of the global information age to communities worldwide. The two sectors that we will focus on, transportation and telecommunications, depend heavily upon each other -- and, in fact, are becoming so integrated as to represent the basic foundation for a country's success in the global new economy.
The U.S. Perspective
There is a growing nexus between telecommunications and transportation in the information age. Today, one of the most important competitive advantages for a company is the speed and efficiency of their supply chain. These supply chains are built on effectively moving information, product specifications, orders, sales forecasts, and goods, parts, components, finished products, both physically and electronically. In manufacturing sectors that have complex and extended supply chains -- for example, the automobile, electronics, and aerospace industries -- speed and efficiency are a key competitive advantage.
In the United States, we have been working hard to foster a domestic and international environment conducive to the development of the internet and e-commerce. We've encouraged private sector leadership. We have worked to eliminate unnecessary regulations and other barriers to e-commerce and transportation by implementing market-oriented policies such as the Telecommunications Act of 1996; this law removed the last vestiges of monopoly telephone service in the U.S. and expanded competition and market access more than in any other part of the world. We have implemented air services deregulation at home and pursued liberalized bilateral aviation agreements abroad to encourage freer access to aviation markets around the world; these policies have cleared the way for air service to new cities, creating jobs and economic value far beyond the direct benefits of the service. These steps to make the telecommunications and air services sectors more market-oriented and competitive have been vital to the success of the new economy.
Our policies have brought tangible dividends. Consumers enjoy greater choice and lower prices. The U.S. economy has achieved high growth in combination with low inflation, thanks in considerable part to the increased productivity achieved through the use of information technology. While information technology still accounts directly for only 8% of total jobs in the U.S., it appears to have generated nearly one-third of recent U.S. real economic growth, according to the U.S. Department of Commerce studies.
Nowhere has the marriage of the internet and transportation been more marked than in air cargo transport.
About 40% of the value of exports from the U.S. now moves via air cargo. In fact, some recent studies show that the air cargo industry is now expanding at a faster rate than are air passenger services. The information age has played an important role in that expansion. Online commerce demands efficient, global cargo networks that can deliver purchased goods quickly and at reasonable costs. And in the global information economy, many cargo carriers are going beyond just delivery of goods; they now provide online tracking services that allow customers to locate shipped goods anywhere in the cargo network. Indeed, as panelist Jim Kelly will surely explain, whereas UPS used to be a "trucking company with technology," it now considers itself "a technology company with trucks."
We have been working hard to remove many of the trade barriers to cargo operators. Since 1992, we have established 48 liberalized Open Skies aviation agreements with like-minded countries around the world; these agreements remove all restrictions on the frequency, capacity and pricing of cargo services. Where countries are not prepared to allow Open Skies for passenger services, we will consider all-cargo Open Skies, as we did with Australia. Approximately 60% of the U.S. international aviation market now falls under either Open Skies or other modern, significantly liberalized arrangements.
We continue to meet with our counterparts to discuss ways to improve upon the existing bilateral regimes. We are looking at ways to expand our bilateral air services agreements to include 7th freedom cargo rights, to ease the flow of goods and services between third countries, and reduce costs to service providers. We are also encouraging the development of wholly integrated intermodal services within existing and future liberalized air transport agreements. In fact, this week we will be signing two agreements -- one with France and one with Germany -- which will incorporate intermodal transactions into our Open Skies bilaterals with those countries. Within APEC, we have even gone one step further, and are now in negotiations to expand upon our existing bilateral Open Skies agreements with five APEC members in order to establish a multilateral liberalized agreement.
As the reach of the internet, of express cargo carriers, and of international transportation networks expands, so does the need for further liberalization in other sectors. For example, customs regimes, as well as the regulatory environment in which they operate, must be modernized if economies are to successfully participate in globalized, internet-based "just in time" supply chains. The business to business supply chain is undergoing radical transformation as "just-in-time" logistics are adopted. Businesses can now give suppliers easy insight into their sales forecasts and inventory status, making it easier for suppliers to provide components or even finished products exactly when they are needed. This is dramatically increasing inventory velocity and reducing the high costs associated with warehousing.
We need to move forward on innovations such as paperless customs clearance procedures which would allow preprocessing of customs information and help reduce transit times through customs. Countries need to develop duty-collection methods which are efficient and predictable and minimize any collection-related delay in delivery of the goods. Predictability will be fostered by making national customs procedures and regulations publicly available through posting, and regular updating, on the internet.
Cargo has not been the only area in aviation that has benefited from the e-commerce boom. We have seen a considerable impact on the passenger market.
In Europe, travel is the largest source of online retail revenue. One regional carrier, EasyJet, estimates that 80% of its ticket purchasing is generated online. Southwest Airlines has topped $1 billion this year in online sales alone. In the United States, web-based travel resources are expected to grow from what was a $5 billion industry in 1998 to a $30 billion industry by the end of 2001. The industry sold 2% to 4% of its tickets over the internet last year, and there are estimates that that percentage will grow to 45% by 2004. For countries that depend heavily on travel and tourism as their bread and butter, it is essential that they have the resources that will allow their transportation and travel providers to tap into this growing market.
All of these concepts depend heavily upon one basic factor in order to succeed, and that is widespread, reliable and affordable access to the internet. The internet is integrally linked with global transportation networks -- from the sale and marketing of transportation services to the use of transportation networks to deliver goods and services purchased online. Hence, participation in the global information economy first and foremost requires deregulation in telecommunications.
The experience in countries from the U.S. to Europe to Africa has proven that competition in the telecommunications market has resulted in lower prices, greater innovation, and improved quality of services for consumers. Since local telephone charges can be a significant part of the overall cost of internet usage for consumers, the introduction of greater competition in local access networks can bring about a substantial reduction in internet access fees.
A recent World Bank study of internet access pricing in Africa found that countries with the least liberal markets had access charges 700% higher than countries with the most liberal telecommunications regimes on the continent. Lower rates stimulate greater usage of the network. Greater usage enables carriers to finance universal service obligations, spurs investment, and enables newly privatized state enterprises not only to remain financially healthy but to grow in the face of global competition.
Governments alone could never afford the enormous telecommunications infrastructure necessary to drive the information economy. But governments can create an environment that spurs competition and private investment.
The U.S. is committed to working with other countries to empower all societies to reap the benefits of the global information economy. And while many may think this task beyond their own country's limited resources, consider this:
This is a potential boon to the developing world. Companies around the world with access to adequate information and transportation infrastructures can become the suppliers to companies in developed countries. They can participate in supply chains and markets that were previously closed to them.
The enormous potential for cross-border sales of physical goods online can only be fulfilled, however, if the infrastructure exists to efficiently complete all aspects of ordering, shipping, tracking, clearing, and delivering those goods to the customer's door -- whether that door is in New York, Nairobi, Paris, or Beijing. Companies like UPS and FedEx are developing these areas where information and transportation infrastructures come together. Such companies can create logistics services that allow them to manage a manufacturer's entire supply chain, making sure components are delivered when they need to be, and offering warehouses from which they can distribute products worldwide. They are tailored to the customer's need to get the order "just-in-time.",
Best Practices for Today
For countries to fully prepare themselves to share in the benefits of the global information economy, and for all of us to benefit by every country's participation in this global economy, there are several practical steps we must take. These are our "best practices" for today that will shape the global economy tomorrow: First and foremost, we must make it cheaper to get online and stay online; we must examine the regulatory environment, and merchandising restrictions in particular, to ensure that unnecessary and transnationally inconsistent laws are not impeding digital commerce; we must provide customers with swift and secure electronic payments options; we must liberalize transportation regimes; we must enable goods to move efficiently through customs; and finally, we must open competition to permit goods to quickly and inexpensively traverse the "final mile" between ports of entry and the customer's doorstep.
Underlying all these policies must be a commitment to openness and the free flow of information. I do not believe it will be possible to have a successful information economy if governments attempt to suppress or control the flow of information in their societies or between countries.
The various sectors which underpin successful integration into the global information economy will depend more and more upon each other as global integration continues. If we take a holistic approach, and address all the sectors at once, we can generate critical synergies that will fully prepare countries to participate in the global economy. The benefits of progress in any one sector will be multiplied by progress in the others.
To conclude, the new global information economy provides a great opportunity for sustainable growth and social development in all countries and economies, including developing countries and economies in transition, based on free-market and procompetitive policies. Just as the establishment of telephone lines and coast-to-coast railroad infrastructure revolutionized our domestic economy in the last century, the development and integration of telecommunications, transportation, customs, and delivery services in support of e-commerce will revolutionize the way we do business in the 21st century. I believe that working together, we can maximize digital opportunities for all of our economies and all of our people.
Thank you very much.
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