hese are desperate times in Japan. Probably the clearest reflection of the anxiety in the land of the rising sun is the ascension of maverick politician Junichiro Koizumi to prime minister over the Liberal Democratic Party, which has governed Japan for most of the past five decades and been a byword for stiff opposition to change.

The new man at the helm made it to the top advocating a shock therapy aimed at corporate restructuring and tackling the bad loan problem. In April, the country's debt stood at $5.6 billion, higher than that of other industrialized nations. The worst non-performing loans of Japan's banks amounted to a staggering $178 billion. Some believe Koizumi's reform plans will lead to scores of companies going out of business.

This is bitter medicine, but the realization has grown that only drastic action can overcome Japan's decade-long economic stagnation. Over the past nine years, various governments launched 10 economic incentive packages worth a total of $1.2 billion to little evident effect. In the past fiscal year, which ended on March 31, Japan saw a record $209 billion fallout from corporate bankruptcies, with bankrupt companies' liabilities up 131 percent.

Consumer and business spending are down, wholesale and consumer prices have weakened, public debt is soaring and economic growth has returned to negative territory. Over the past 12 months, the Nikkei lost over 34 percent of its value.

Moreover, the slump in the American economy has stymied Japan's exports, which had looked set to benefit from the weakness of the yen. In March, the country's trade surplus fell 17.2 percent from the March 2000 level.

Bare Bellies

This is taking its toll on yields of the airlines moving cargo out of Japan as the gap between exports and imports widens and prices plummet as operators try to bring some equilibrium to the unbalanced market.

"From Japan to North America we were always full. Not any more. From Japan to Southeast Asia we were always full. Not any more," said Pete Diefenbach, assistant director of sales and marketing for the United States at Nippon Cargo Airlines.

The airlines' troubles on Japanese exports are minor compared to their loads and yields heading from the United States to Japan, however. Westbound yields have continued to decline, and the price war is getting worse. Some have pointed at Polar Air Cargo and the Taiwanese and Korean carriers as the leading rate cutters, but even the Japanese players are taking the gloves off. "We're going to be really aggressive. We've decided to go for market share. This is going to be real dirty," one Japanese carrier executive said privately, adding that management has not set a floor for its new downward pricing strategy.

Plum Prices

For shippers this means record low prices to get their traffic to Japan. "There are some really ugly rates out there," said Jerry Molinelli, cargo marketing manager for the Americas at Japan Airlines. One airline recently moved freight from Atlanta to Tokyo for as little as 50 cents per kilo. That rate included the cost of trucking from Atlanta to New York, which is about 15 cents a kilo alone. Other carriers have offered 80 cents a kilo to inland points in Japan.

Such discounting is hardly unheard of on the often-volatile trans-Pacific lanes, of course. But it comes at a sensitive time for several airlines that have launched lines of premium services over the past year in bids to move beyond the daily space-selling bazaar.

This rate war leaves the Japanese carriers' premium product policy in tatters. All three of them launched time-definite services over the past year, but shippers show little inclination to sign up since cargo is certain to move anyway, given poor loads on westbound flights. "We try to sell PRIO, our express service, but it's difficult at the moment," said Takahide Uemura, cargo sales manager for North America of All Nippon Airways.

Of course, economic reform may brighten Japan's long-term outlook, but the pain in the near term is unlikely to translate into healthier business for airlines serving Japan. With more freighters poised to enter the arena, the picture is more likely to get uglier before it improves.

... Briefly

Exports of domestic products produced in Hong Kong fell 21 percent in March and airport handler Hong Kong Air Cargo Terminals says its tonnage was down 5.5 percent in the month and 3.8 percent over the first quarter compared to the same quarter a year ago. The Hong Kong Airport Authority, meanwhile, said total shipments were down 12 percent in April, including a 16.2 percent decline in outbound traffic. … Japanese forwarder Kintetsu Worldwide Express struck a cooperation deal with Sagawa Express, a domestic delivery company, for shipping within Japan. ... Korean Air started offering cargo traffic over wireless devices. ... Malaysian Airline System lost $222 million in the nine months ending Dec. 31. ... American Airlines is connecting Silicon Valley with the large high-tech and semiconductor manufacturing in Taiwan with a non-stop flight from San Jose, Calif., to Taipei. ... Nippon Cargo Airlines is adding a 10th 747-200 freighter, which it says it will use between Japan and the United States. … All Nippon Airways ordered nine 767-300ER aircraft valued at $1 billion. ... GAC Cargo Systems expanded its Thailand operations with a new IT development center and airport facility. ... Cathay Pacific will start daily nonstop A340-300 flights between Hong Kong and New York. … Hong Kong logistics operator LINE signed a contract with shoe maker Reebok to jointly design and pilot an "e-logistics" program. … The Australian government is selling a 49 percent stake in its main international gateway, Sydney's Kingsford Smith Airport, with the price expected to reach US$2.5 billion. ... Air New Zealand expects to report a significant loss for the fiscal year ending June 30 because of difficulties at its Australian subsidiary Ansett Airlines. ... Thai airports Chiang Mai, Hat Yai, Phuket and Bangkok were added to ARINC and AEROTHAI's global Digital Automatic Terminal Information Service providing participating aircraft airport status and weather information. ... EVA Air ordered eight A330-200 aircraft to replace 767s, the Taiwanese airline's first order from Airbus.