The future is not far away.
Changing your Logistics patterns usually occur when it has to be done – but that is when your competitors are also likely to be changing their Logistics. With more businesses competing for the new environment, prices increase. The alternative is to think ahead and consider what could happen and whether changes to your business model are required and when.
2030 seems like a long way off, but is it? Recently I was shown two photos of a busy 5th Avenue in New York. The first was taken in April 1900 and there was not a car in the picture. The second photo was taken in March 1913 and there was not a horse to be seen. And we are told that change in the 21st century is faster!
As Logisticians, an inherent part of the role is considering the options for moving and storing items, now and in the future. Because infrastructure development takes time and the results are initially incremental changes to trade lanes, it is the knowledgeable Logisticians that sees the opportune time to take advantage of the changes.
Events in 2016 and Logistics thinking
Three events happening in 2016 are triggers for thinking about the patterns of trade by 2030 and how your organisation may be affected or can take advantage.
The first event is the New Silk Road. The concept was announced in 2013, but financing became available in 2016. The New Silk Road concept is to connect China with six economic co-operation corridors to the west and south of China. These will be developed along three land trade routes, called the Silk Road Economic Belt and two sea trade lanes, called the Maritime Silk Road.
The New Silk Road concept is a long term project that may not be completed by 2030, given the need for agreements on building missing sections of rail and road, building ports and logistics hubs and clearing bottleneck areas. The important element to drive the vision is availability of finance, which is now in place.
The US$40 billion Silk Road Fund has been established, initially by Chinese government entities, to help finance New Silk Road infrastructure projects. The Asian Infrastructure Investment Bank (AIIB) has been established, with 57 founding member countries, to complement and co-operate with existing multilateral development banks (MDB) to provide funding for infrastructure in Asia; this will include projects within the New Silk Road initiative.
The second event of interest to Logisticians is also in Asia. The ASEAN Economic Community (AEC) came into being at the start of 2016, with ten member countries, a combined population of 625 million and a collective GDP (in 2014) of US$2.5 trillion. The AEC objective is to become the fourth-largest economy in the world by 2030. It intends to be a region with free movement of goods, services, investment and skilled labour – a single market and manufacturing base. China views the AEC as an integral part of the New Silk Road concept.
From a Logistics viewpoint, the immediate challenges for the AEC are:
- reduce cross border goods movement ‘red tape’
- documentation requirements
- inspection requirements
- harmonised classification of goods
- regulations concerning truck operators at border crossings
- transparency of processes for customs and transport certification
- a single aviation market
- integration of telecommunications and upgraded use of IT in developing countries
- integration of energy distribution systems
To achieve the free flow of goods and services within the AEC, member countries will have to dismantle their non-tariff barriers concerning registrations, licensing and land acquisition. As import tariffs are reduced around the world, non-tariff barriers are increasing, so it could be a long process for their elimination within the AEC. All these challenges can be addressed by 2030, but it is the momentum to make it happen that needs to be evident.
The third event of interest to Logisticians is the opening of the expanded Panama Canal in May of this year. There will be a loud fanfare, but identifying changes to trade routes will take time as shippers and shipping companies evaluate what the expanded Canal will do for their business. Transport by water is the lowest cost form of transport and via the Canal, the size of ships will double to about 14,000 containers but fuel consumption to US East Coast ports is increased by about 50 percent.
The expanded Canal will allow ports along the U.S. Gulf and Atlantic coasts to compete with ports on the West Coast. The voyage from Shanghai to the Midwest of America takes about 18 days via West Coast ports, then trains and trucks for the land section. The same journey via the Panama Canal and East Coast ports takes about 22 days including the rail and road section. As said, transport by water is the cheapest form, so the difference in time is at the lower cost. If shippers recognise that containers on a ship become their floating warehouse, then visibility of cargoes is vital, but the outcome is less inventory at the distribution locations.
Unlike the other two events, the expansion of the Panama Canal will not lead to an increase in demand for goods, but, similar to the events in Asia, it will have an influence on the structure of trade routes. For Logisticians, the challenge is to identify when this is likely to occur and what effect it will have on your organisation’s business and profitability.