Key Factors Shaping World Trade and Global Logistics
By all accounts, 2016 will be a year in which major agreements and more open markets will shape world trade and increase the global logistics that move commodities to manufacturers, and finished goods into the hands of consumers virtually everywhere on the globe.
From the Trans-Atlantic Trade and Investment Partnership (TTIP) and the Trans Pacific Partnership (TPP), to more open markets in Mexico and the lifting of sanctions in Iran, there is certainly a lot to watch out for as we move forward.
By far, the biggest impacts on global trade and logistics will be the TTIP and TPP. Both of these agreements will affect massive portions of the global economy and include countries that are on all points of the development spectrum. Some of these are emerging economies that will benefit from both the lower cost importation of goods and increased opportunity as manufacturers and suppliers enter more mature markets. Then there are the mature economies, such as the U.S. and Western European countries, that will be able to access new markets with their own products.
By way of example, let’s look at the Tier I and Tier II automotive manufacturing suppliers. In total, according to the European Automobile Manufacturers Association, the automotive sector in its entirety accounts for 10% of all trade between the European Union and the United States. They will gain a lower cost manufacturing base in one of these Free Trade Agreement (FTA) countries. In addition, they will be able to compete more effectively with local suppliers and reduce the length of their supply chains to get to their OEM customers faster. The FTA’s currently under discussion to provide the opportunity for those companies to offer components at a lower cost and increase their market share over local suppliers.
Also under the TPP agreement, the primary opportunity for developing markets is by becoming suppliers to the mature market countries. With lower cost production and supply, they gain the ability to distribute products faster and with fewer hurdles than before the TPP agreement.
The same opportunities apply in countries like Mexico that are opening their borders by reducing trade hurdles. On-shoring is not a new phenomenon in that market—the last three or four years have seen significant increases in companies pulling manufacturing back from Asia. However, such agreements increase the attractiveness and ability of large OEMs to set up in such markets. Not only are major automotive manufacturers building new plants and increasing production there, but also major aerospace and electronics manufacturers are seeing the advantages of increasing manufacturing capacity next door to one of the largest consumer nations on the planet.
Another example of opportunity is the lifting of sanctions against Iran. With its highly educated, youthful population of over 70 million people, Iran is ripe with opportunity. With existing partnerships there, companies like DB Schenker are well placed to get a head start in doing more business. However, our expectation is that this will take some years to materialize, as the lack of a robust internal distribution infrastructure to get imported goods into the hands of end customers prevents more rapid development. This is typical of the situation when less mature economies are first opened up.
In general, the combination of the different free-trade discussions and partnerships, along with more open borders in certain countries, present logistics companies and small and medium component suppliers with an unprecedented opportunity to grow and develop markets in locations previously unattainable. For SMEs, they have the opportunity to enter markets that were previously not accessible due to an inability to produce at either the same cost or quality as local competitors.