Nearly 69% of logistics professionals say they worry about a retreat from free trade in 2017 following the UK’s Brexit vote and the collapse of global and regional trade talks, a new survey shows.
The survey of more than 800 global logistics and supply chain executives is part of the 2017 Agility Emerging Markets Logistics Index, an annual snapshot of industry sentiment and a ranking of the world’s 50 leading emerging markets by size, business conditions, infrastructure and transport connections. The index was compiled by analysis company Transport Intelligence (Ti).
A significant minority – 43% – said the International Monetary Fund’s 2017 emerging markets growth forecast of 4.6% is too optimistic. Commenting on the optimism of respondents in the face of the UK withdrawing from the single market and Donald Trump’s avowed intention to take the US out of the TPP, John Manners-Bell, Chief Executive of Ti said: “When we made this survey in the past, Europe was in a bad place, there is a much more positive outlook there and in the US. Trump’s focus on economic growth will no doubt have a big impact on drawing in volumes from around the world, regardless of withdrawing from the TPP. The US’s strong economic position will undoubtedly have an impact on emerging markets. A lot of people will see the US pulling out of the TPP as an opportunity for improving supply chains in China and the US.”
Essa Al-Saleh, CEO of Agility Global Integrated Logistics (pictured below) pointed out that trade will not stop due to these changes in US and UK policy: “The routes may shift from one market to another but the growth rate will remain positive.” Manners-Bell added: “It will be very interesting to see the effects of the Trump presidency on US OEMs’ activities; there has already been some pressure on them to keep production in the US, the effects of this may well have some considerable impact on US OEMs’ global expansion strategies.”
India and the global supply chain
India was a standout in the survey and country rankings. Logistics professionals picked India as the emerging market with the most logistics potential and the country where their companies are most likely to invest. India climbed past United Arab Emirates to No. 2 in the Index after China. When asked about Peugeot’s recent announcement that it is to re-enter the market with a joint venture and how this, and other OEMs continued entry to low cost country sourcing, will affect the global supply chain, Al-Saleh said: “Usually when an OEM moves into a new market, an ‘ecosystem’ of suppliers and service providers builds around it because of course OEMs look to reduce complexity in their supply chain.
With a new Goods and Services Tax (GST), the biggest reform in India’s indirect tax structure since the economy began to be opened up 25 years ago, coming into force in April 2017, Al-Saleh was asked what the negative impact of this might be to automotive supply chains in the region. He said that in the long term GST was a positive move by the government: “It should reduce complexity and enable consistent taxation standards to be applied. In the short term, it remains to be seen how the introduction of GST will work.” Manners-Bell agreed: “The medium- to long-term outlook under this new system is very positive. There might be some short-term technical issues in implementing it but these will be overcome and help to transform the market thereby making it effectively a single market, in the manner of Europe.”
2017 Index highlights:
Twenty-four of the 50 countries – including seven of the top 10 – experienced a year-over-year deterioration in their Index scores, reflecting stagnation in global trade growth and turbulence in emerging markets.
China, the world’s second-largest economy, remains the world’s leading emerging market. In the survey, supply chain executives identified the direction of China’s economy as the factor most likely to drive global economic and trade growth in 2017. 76% said China’s slowing economy is slowing, but only 17% said the slowdown is significantly hurting the transport and logistics sector. 66% said lower growth will not alter their plans in China. China could join TPP and the effects of this could be dramatic, as Manners-Bell said: “In my view supply chains are going to become more regionalised and focused around China in years to come.” Al-Saleh agreed, and said: “Trade and supply chains will always follow the path of least resistance, and if this is China, then trade will grow there.”
Robust growth and long-anticipated tax and economic reform pushed India to No. 2 in the Index and impressed the logistics executives surveyed. Even so, India’s surprise decision to remove high-denomination banknotes from circulation and encourage cashless payments could be jarring for the economy in 2017.
UAE, No. 3 overall in the Index, again topped the rankings in the areas of business climate, and in logistics infrastructure and transport connections. Gulf countries UAE, Qatar, Oman, Bahrain, Saudi Arabia and Kuwait claimed six of the top 10 spots for best business conditions.
Iran climbed eight spots in the Index rankings to 18th overall and leapt to 9th from No. 15 among emerging markets countries that executives view as having the most potential to grow as logistics markets. Iran’s gains were the biggest of any country in the Index or the survey. Al-Saleh said of the region: “There is a lot of interest in Iran but not yet any tangible actions there by global players. There is still a lot of uncertainty as to how the sanction lifting will evolve, especially with the current political situation.”
Africa’s biggest economies – Nigeria and South Africa – were among the countries that fell most sharply in the Index. Smaller African markets – Uganda, Ethiopia, Tanzania and Kenya – improved their rankings in 2017.
Brazil held its No. 7 Index ranking despite a painful recession and the impeachment of President Dilma Rousseff. In the survey, logistics executives again picked Brazil as the market with the most logistics potential after India and China. One reason for their optimism: nearly 57% expect commodity prices to rebound in 2017, although most do not expect significant increases.
Bahrain jumped five spots in the latest Index to No. 23 after years of social unrest that hurt its ranking. Argentina, attempting to end years of international economic isolation, climbed three places to No. 28. Kazakhstan shot up four spots to No. 14, largely on the strength of business conditions that ranked behind only those of four Gulf countries – UAE, Qatar, Oman and Bahrain.
Turkey weathered the effects of an attempted coup and extremist violence, moving from 10th to No. 9 in the latest Index. Russia fell from 9th to No. 10, a modest slip suggesting that has contained the fallout from Western economic sanctions and low energy prices.
The situation in Russia is particularly pertinent as Trump speaks of lifting restrictions on US trade to the region and Essa Al-Saleh spoke of opportunities there: “Russia is a trillion dollar economy and sanctions have had an impact, making trade in the region complex and difficult but I don’t think that is the major issue. I think it is a lot to do with oil and gas price and supply volatility; this has created a depressed investment situation. I do think that Russia is a significant market for the long-term.”
The Index, in its eighth year, ranks emerging markets countries by factors that make them attractive to logistics providers, freight forwarders, shipping lines, air cargo carriers and distributors.
Political uncertainty continues to cause concern
Essa Al-Saleh said logistics providers and their customers are concerned that anti-globalisation feeling and populist policies in the UK and United States could spread and harm trade in emerging markets that rely heavily on exports.
“Emerging markets continue to deliver the highest growth rates in the world, but as links in the global supply chain, countries can be extremely hard to evaluate,” Al-Saleh said, adding: “The Index and the survey are useful when it comes to identifying the relative strengths and weaknesses of individual markets.”
John Manners-Bell said: “Uncertainty and volatility have characterised many emerging markets in 2016. This has been compounded by the political environment in Europe and the US, which will have direct consequences on trade with Latin America, Asia and Africa. However, there have been many positives too – for example, the strong performance of India. More than ever, the Index identifies and contrasts those markets which will prosper from the most vulnerable and poorest performing.”
Streamlining tomorrow’s supply chain
Summing up in response to another question on where the major bottlenecks are in the global supply, and who will invest to streamline them, Al-Saleh said: “Amongst the key bottlenecks, and something which requires the least investment to fix, is regulation. Our studies at Agility have shown how the multiplier effect of smarter policies on regulation can have a tremendous effect at very low cost. This is especially true for emerging markets and it is part of how we measure emerging markets’, in terms of their connectedness and effective trade policies.
“Logistics infrastructure is another major issue. There are big trends in the supply chain today that revolve around information and how it shared and used to optimise routes and drive trade sustainably. Another major enabler is automation; there is a lot of this coming into the supply chain and much of it is centred around in-warehouse and in-plant activities, and how we process transactions. This is a very important area for investment.”
2017 Agility Emerging Markets Logistics Index: www.agility.com/2017index