Will inadequate transportation infrastructure and congestion negatively impact worldwide economic growth in the years ahead?
One transportation leader believes so.
"If our transport infrastructure can't keep pace with the rate of growth, then big question marks hang over the continuation of the kind of economic prosperity that has been delivered this decade," warned Ron Widdows, CEO of Singapore-based container shipping line APL, during the European Conference of Ministers of Transport in June.
This was the latest in a series of high-level alarms sounded by APL and Widdows to warn against overcrowding at seaports, and on highways and railways worldwide.
Widdows told his audience of government leaders that transportation infrastructure can't keep pace with the global growth in trade.
By 2010, he explained, global container volumes will reach double their 2000 level, but in many of the world's key markets, the transportation infrastructure won't be able to handle the load without negative impact to the flow of goods.
Widdows put forth a call to action for "massive investments to modernize and expand the transport system," urging governments—including the European transportation ministers—shippers, and transportation industry executives to collaborate on solutions.
Otherwise, congestion will slow future economic growth rates, add costs to global supply chains, and could lead companies to reconsider their sourcing strategies, he noted.
To illustrate the problem, Widdows pointed to cargo arrival data: in the first quarter of 2007, only 46 percent of container vessels globally arrived at ports on time—the lowest level on record. At European ports, less than 30 percent of vessels arrived on time.
"Because of the highly interconnected and integrated nature of the systems that today service international trade, we need a consistent worldwide approach to implement solutions," said Widdows.
"Congestion in any major part of the world's supply chain has global reverberations."
The United States, Canada, and Latin America have the potential to form the world's next great trading bloc—as long as the nations move quickly to improve transportation infrastructure and simplify customs requirements.
Such is the opinion of UPS Chairman and CEO Mike Eskew, voiced in June at the U.S. Commerce Department's inaugural Americas Competitiveness Forum, which brings together North American government, private sector, academia, and non-governmental organization leaders to develop strategies for optimizing trade.
"Latin America, home to a half-billion people south of the U.S.-Mexico border, has the potential to be the next hotbed of trade and economic growth," said Eskew.
In addition, Latin America's real GDP is expected to grow 4.4 percent annually—a faster rate than Asia (3.6 percent) and the global average (2.8 percent)—making it certain to be a major global trade focus.
The North American Free Trade Agreement (NAFTA) between the United States, Canada, and Mexico already has created the second-largest trading bloc in the world behind the European Union, and accounts for far more trade than the United States conducts with China, the CEO noted.
Recent numbers from the Bureau of Transportation Statistics (BTS) support his assertions: Trade using surface transportation between the United States and its NAFTA partners reached $69.8 billion in March 2007, the highest monthly level ever recorded. In April, the most recent month for which statistics are available, U.S.-NAFTA trade tallied a solid $65 billion, 5.3 percent higher than in April 2006.
And, since NAFTA's implementation in 1994, trade growth between the United States and its northern and southern neighbors has increased steadily. The value of U.S. surface transportation trade with Canada and Mexico jumped 97 percent from March 1997 to March 2007, with imports growing 110.4 percent and exports increasing 81.6 percent during those 10 years, according to BTS.
But continued, uninterrupted growth among the three nations is not necessarily a sure thing. "Although we're neighbors, we have so many complicated customs and security requirements in place that it is often easier to import goods from Europe or Asia," Eskew noted at the Americas event.
These trade issues are particularly nettlesome, he said, because they impede the region's built-in advantages, such as geographic proximity.
Extensive delays in cross-border shipments between NAFTA partners, for example, threaten the proximity advantage over other hot trading regions such as Asia.
Eskew's advice? U.S. and Latin American governments should take several steps aimed at shoring up trade stability:
- Develop a single, streamlined customs clearance system.
- Identify "trusted shippers" and let them get in the "fast lane" for customs processing.
- Raise the minimum dollar value at which imported goods must receive customs clearance, and separate the release of shipments from the collection of duties and fees.
- Increase spending on transportation infrastructure, particularly the road and rail networks. Latin America spends less than 2 percent of GDP on infrastructure, compared to 3 to 6 percent in China and South Korea.
- Improve the communications infrastructure, both wired and wireless.
Perish the thought, but Asia is lagging—in terms of air cargo volume, that is.
Middle East airfreight traffic tops the world in freight ton kilometer growth during the past year, accelerating at a 12.7-percent clip, while the Asia Pacific region plods along at a more pedestrian pace of 4.7 percent, according to a surprising recent report from the International Air Transport Association (IATA).
But in terms of critical mass, Asian—and specifically Chinese—air cargo volume is expanding, along with its airports.
Asia Pacific lays claim to five of the top 10 freight airports in the world—Hong Kong, Tokyo Narita, Seoul Incheon, Shanghai Pudong, and Singapore. It also boasts three other Chinese hubs with roughly 20-percent cargo growth since 2005—Shanghai Hong Qiao (22 percent), Guangzhou Baiyun (18.7 percent), and Beijing (17 percent).
So what accounts for the anomaly in IATA's most recent data?
For one, IATA measures airlines by registration region, regardless of where they fly, indicates Mark Smyth, the trade organization's senior economist.
"Therefore, some of the growth for Middle Eastern airlines will include, for example, Asia-to-Europe cargo that airlines such as Emirates carry transiting through Dubai," he explains.
Secondly, elsewhere in Asia, cargo volumes are somewhat muffled. Japanese, Taiwanese, and Southeast Asian airports grew slowly last year and in some instances posted declining freight growth: Singapore (3.3 percent); Tokyo Haneda (3.2 percent); Jakarta (2.5 percent); Osaka (0.7 percent); Taipei (0.3 percent); Kuala Lumpur (0.1 percent); Manila (-2.6 percent); and Tokyo Narita (-3.5 percent).
"Asia Pacific is a wide and diverse region, so it covers fast-growing markets such as China and India, but also more mature markets such as Japan and Korea," says Smyth.
"Given the large amount of cargo already carried by Japanese, Korean, and Taiwanese airlines, slower growth among these countries has a major dampening effect on the overall Asia Pacific total," he adds.
He also points to other broad trends in global trade that are impacting Asian volumes, including the increased competitiveness of container shipping in terms of time as well as price, the dominance of services in GDP growth for many countries, and the move in manufacturing toward smaller, lighter products.
"Each of these has an impact on the overall freight ton kilometers carried," Smyth concludes.
Pakistan's Prime Minister Shaukat Aziz has become a cheerleader for supply chain efficiency, calling it a key to increasing the country's economic competitiveness.
Speaking at a June meeting of high-level government and private-sector officials, the Prime Minister outlined the country's National Trade Corridor (NTC) plan aimed at improving all aspects of its logistics network.
Pakistan's plan to modernize railways and highways, construct new roads, and simplify customs procedures and processes at ports, airports, and borders has reduced cargo clearance times, Aziz reported.
In addition, NTC has helped Pakistan speed the movement of goods throughout the region.
The country hopes the continued revamping of its logistics network will lead to greater economic stability, eventually helping to increase foreign investment in Pakistan. During the current financial year, Pakistan garnered a record $6 billion in foreign investment.
The country's pro-logistics stance is also earning kudos from major transportation companies operating within Pakistan, such as Port World Logistics and KGL Transportation Company. Both companies support the NTC program, saying it will help promote trade and business in Pakistan.