Let’s Make Global Trade More RobustJune 25th, 2012
Global Trade has reshaped the economic face of the planet and contributed to a rise in living standards around the world. It’s been driven by the sharp increase in world trade. But what has fuelled that increase? The dramatic decline in logistics and transportation costs for one thing.
Here’s an eye-opening statistic: in 1960 the cost of logistics accounted for an average of 15% of the value of exports. That figure is down to less than 1% today. This enormous increase in efficiency is thanks to standardization and, specifically, containerization. I think these efficiencies are now reaching their peak, evidenced in part by apparent slower pace of global trade growth.
On the face of it, you’d think that new, consumption-driven economies and changing demographics would automatically bolster world trade. It’s not that simple I’m afraid. Although up-and-coming hotspots of consumption and trade like Asia, South America and Africa are driving global trade and shifting its dynamics with the potential to drive up absolute trade volumes, I see five critical areas we need to address to make global trade more robust and generate growth:
2. Carbon efficiency
3. Supply chain visibility and security
4. Customs regulations
5. Eliminating global trade barriers
1. Reducing global trade bottlenecks
Lack of infrastructure is one of the main impediments to growth in emerging economies. In an ideal world, infrastructure growth would always be a step ahead of demand. However, public infrastructure spending in growing economies is much lower than in developed economies. For example, India spent US$12.4 billion on transportation infrastructure over the last 10 years – about 2% of GDP which is well below the global average among developed countries. If I could tell policymakers anything, it would be to make those infrastructure investments, even though they’re capital intensive, since the economic growth and per-capita income benefits far outweigh the ramp up costs.
Developed countries have their work cut out for them, too. Logistics providers like Deutsche Post DHL can reduce congestion to a certain extent through route optimization, intermodal transport and better use of technology. But that won’t solve the underlying problem. The solution lies in adequate airports, seaports, roads, power stations, communication systems, etc. Infrastructure should be the pillar of trade growth instead of being a barrier.
2. Improving carbon efficiency
Governments are increasingly putting a price tag on carbon emissions, and high oil prices are here to stay. The EU already has the largest mandatory emissions trading system and elsewhere similar systems are in the works. And here’s another stunning stat: 10 years ago 13% of airline running costs was for fuel; today it’s 30%!
Add to this the fact that the transport sector accounts for 14% of global greenhouse gas emissions – and the trend is rising – and you see where I’m going here. Reducing our carbon footprint is not just good for the environment, it’s good for business. And there’s so much we can do.
At Deutsche Post DHL, we consolidate ocean freight shipments to optimize capacity, improve routing to avoid unnecessary overland transport, and offer intermodal transport to maximize efficiency. We understand that the age of point-A-to-point-B logistics is over. The future is in pulling the right strings based on comprehensive know-how. Green transport solutions will be a key lever in fostering global trade.
3. Providing supply chain visibility and security
The success of any supply chain depends on its flexibility. Unexpected delays can occur at any time – weather disruptions, port congestions, etc – and are difficult to predict. We need access to real-time supply chain information through sophisticated visibility solutions that can help plan for such disruptions in the supply chain. DHL offers a range of advanced, real-time tracking solutions that provide our customers with up-to-date cargo location information, along with intelligent, proactive delay notifications.
Security is another major concern. Real-time information during transport enables us to respond faster to security breaches. By allaying fears, we can help foster trade to even the remotest areas.
4. Simplifying customs regulations
You cannot talk about global trade without mentioning customs regulations, which have a huge impact on trade between countries and regions. Just think if other regions were to adopt a harmonized customs regime like in the EU, where regulations are standardized. It would vastly reduce the complexity of global trade.
Thankfully, electronic customs filing, which also simplifies the process, is on the rise. I’ve watched as countries adopted this technology and experience huge improvements in processing speed. In addition, if we combined electronic customs filing with efficient data mining tools, we could reduce the need for physical inspection of goods at airports and seaports in the future – and significantly improve the overall speed of transport within the supply chain, thereby accelerating global trade growth.
I think more and more countries will align their customs laws – and that we’ll see movement towards a harmonized global system, supported mostly by technology.
5. Eliminating barriers to global trade
Free trade agreements (FTAs) mean less complexity and red tape. The North American Free Trade Agreement (NAFTA) is a prime example. Trade within NAFTA countries more than tripled between 1993 and 2008, and it is said to contribute as much as 0.5% towards U.S. GDP growth each year.
We’ve watched trade grow among the ASEAN states, largely on account of FTAs. There’s a kind of domino effect here: as more countries recognize the economic benefits of having such agreements in place.
As you can see, we still need to do a lot to make global trade growth more robust. The pace of infrastructure development needs to increase to accommodate the demand. Green logistics solutions need to ensure that increases of global trade do not come at the environment’s expense. Full supply chain visibility will help companies minimize risks and support trade growth. And customs harmonization and FTAs will simplify the global trade environment.
Let’s all work together – in government, business and society – to overcome today’s obstacles to global trade growth and unlock its huge economic benefits.