The year 2020 is expected to be a breakout year for global economic expansion and international trade, which have been roiled for some time by the lingering trade tensions between the world’s two largest economies – the United States (US) and the People’s Republic of China (PRC). Though a definitive solution to the trade tensions between the two nations is yet to shape up, the consensus view among economists and commentators is that the worst is behind us. The world is closely watching the developments and preparing itself for new order shaped by this consensus.
This view is echoed by global consultants Goldman Sachs Group Inc earlier this month which is a recent report said the drag on the global economy stemming from the trade war between the US and China is set to fade away in 2020 and went on to forecast that tariffs on the US imports from the world’s second-largest economy have already peaked. The World Trade Organization (WTO) to shares such positive tidings for global trade. In a recent update of its global trade assessment, WTO said that the volume of merchandise trade globally is poised to increase by 1.2% in 2019 and by another 2.7% in 2020.
This is good news for the logistics business in general and its subset project cargo vertical in particular since an expansion in the flow of trade means more demand for inbound and outbound logistics functions such as transportation and warehousing. Though this fact throws up no surprises, the twist in the tale is the shifting pivot point to the developing nations. This is because developed nations already have a well-developed network of transportation network – road, sea and air – and advanced warehousing facilities capable of handling the resulting increase in trade volumes, the picture looks grim for developing countries.
The logistics infrastructure of the developing world is a poor shadow of their developed-world counterparts and needs to be built bottoms up and fast upgrade to handle any increase in the volume of cargo traffic. This is becoming increasingly important as the economic fortunes of these nations are closely linked to their garnering more share in the global marketplace by having an advanced manufacturing facility to compete in the global market. This will drive the volume of Infrastructure Logistics / Project Logistics.
It goes without saying that logistics is the key driver of countries’ and firms’ aim to improving their competitiveness and central to job creation and economic growth. Therefore, it is no coincidence that better performance in logistics goes hand in hand with elevated economic expansion. Since efficient logistics connect firms to domestic and international markets, it affects the efficiency of the manufacturing global value chains and competitiveness of a country’s economy within these value chains.
That is why developing countries are putting infrastructure development at the core of their economic agenda and development narrative as they eye higher share in world trade focusing on infrastructure to create such manufacturing hubs and also generating employment which is concern for most of these countries. Consequently, the demand for project logistics is set to increase in developing countries going forward giving a further fillip to infrastructure development. Specifically, countries in the African continent and south Asian nations provide logistics players immense opportunities to expand their project logistics footprints.
As a natural corollary, the cost of developing necessary infrastructure in the developing countries is peaking and according to the estimates of management consultants McKinsey, these emerging economies would need annual investments to the tune of $ 2 trillion for the next 15 years to keep pace with their forecasted GDP growth. According to another estimate from The McKinsey Global Institute (MGI), overall investments of up to $ 3.7 trillion would be required in physical infrastructure until 2035 to keep pace with projected GDP growth. Developing nations would account for two-thirds of this investment—and could go up if United Nations’ Sustainable Development Goals (SDG) needs to be met—as infrastructure expansion becomes pivotal to economic development.
Incidentally, India is making fast progress in overall logistics development as the country eyes to reach a $ 5 trillion economy mark (Indian economy already has touched the $ 3 trillion mark in 2019 according to the World Bank) by 2024 / 25. Going by the Agility Emerging Market Logistics Index India 2019, India was second only to China in the top overall Emerging Market pecking order. The ranking remains same with India coming second in the pecking order after China in Domestic Logistics Market Index and International Logistics Market Index. India has already lined up massive investments for overall infrastructure development to support both domestic and international shipments of cargo at a cost of Rs 1.4 lakh crore spread over the next five years.
On the balance, as the world economy poised to come out of the woods in the near future and the developing countries gearing up to garner more share in world trade, the theatre for growth for the project logistics business is fast shifting to developing nations. The needle has already started moving in that direction and in the next couple of years will start showing emergence of new Logistics players with niche understanding of Infrastructure / Project Logistics in these geographies.
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