Emerging Markets Outlook: Investment is strong, but uncertainty remains


The $4.9 trillion global logistics market operates as the backbone of international trade, which grew 272% from 2000 to 2021. Expectations for the global logistics market to grow to $6.55 trillion by 2027, coupled with continued growth in e-commerce and the rebound of contract logistics, has companies looking to reimagine their logistics operating models.

However, companies continue to deal with disruption from the pandemic, which has now been further complicated by the war in Ukraine. In fact, a recent Accenture report found supply chain challenges arising from the potential pandemic and Russia’s invasion of Ukraine could result in a €920 billion cumulative loss to gross domestic product (GDP) across the Eurozone by 2023.

Because of these complications, supply chain networks need to be more flexible and efficient while building resilience, relevance and sustainability into the core. Supply chain networks are often more global—not less—with companies using factories that are higher tech, smaller, more numerous, more local, and closer to customers.

As companies build these networks, they’re investing in digital capabilities to enhance service levels and control costs—and they’re also looking to omni-channel fulfillment platforms with dynamic order allocation capabilities to meet ever-changing customer demands.

Transforming with the latest technologies and ensuring resilience and sustainability are embedded throughout these supply chain networks will make companies future-ready and better equipped to managed potential disruptions.

The expansion of emerging markets is an important consideration. As companies look to uncover new channels for growth, they’re continuing investment in emerging markets.

Disruption: Supply chain shocks and the accumulation of disruption

Depending on the length and severity of the war, the cost of supply chain disruption in the Eurozone across 2022-2023 could amount to €242 billion (2% of GDP) in an ongoing war scenario or €920 billion
(7.7% of GDP) in a protracted war scenario.

Logistics Breakdowns
• Transportation bottlenecks worsened input shortages and sent costs skyrocketing.
• Continued lockdowns in Chinese ports and war in Ukraine further strain the issue.
• 90% of Ukraine’s wheat exports have halted due to port closures. Ukraine accounts for nearly 10% of global wheat exports. Wheat prices hit record highs, rising 30% in 2021Q1 on previous quarter.

Energy Security
• Energy markets were already undersupplied before the war given the economic recovery.
• The war in Ukraine has caused further oil and gas price spikes: the price of brent crude oil could peak at 115 USD per barrel in 2022.
• Suppliers are shutting down some operations because energy costs are too high, which creates another wave of input supply shocks.

Lack of Material Supplies
• Resurging demand and initial precautionary hoarding led to inflation and overwhelmed supply chains.
• The concentration of suppliers for critical minerals and food is compounding challenges.
• For example, Russia is one of the largest suppliers of palladium, platinum and diamonds, while Ukraine is the critical supplier for neon gas, agricultural products, and metal ores.

A Tight Talent Market
• Labor and skill shortages plagued most industries.
• The war has created further tension in targeted skills areas like transportation.
•14.5% of the global seafarer workforce are from Russia and the Ukraine.

Hong Kong

Thailand

Thailand continues to make large strides in their economic development. Logistics investments have been fast-tracked as the country obtains more market share.

Thailand had previously broken ground in 2021 on mega-projects worth $5.3 billion to improve national infrastructure focused on roads and rail. This is highlighted by a rail line that will better connect six provinces within a 50-mile radius to Bangkok. Supporting urban sprawl in Thailand is now imperative as the people of Thailand continue to prosper despite economic setbacks associated with the pandemic.

In total, Thailand has $60 billion planned in spending to help support The Ministry of Transport’s 40 mega-projects. Year-over-year, Thailand was able to jump three spots up on Agility’s Emerging Markets Logistics Index Top 20.

Vietnam

Although delayed action from policy makers has caused Vietnam to lose logistics market share, despite prime real estate and economic growth, Vietnam is still considered to be an integral part of omni-channel growth and a large contributor to the internet economy.

Vietnam has positioned itself as key player associated in the Asia-Pacific (APAC) region, with e-commerce spend growing 24% year-over-year. As a benefactor in the US-China trade war, as manufacturers are forced to diversify supply chains networks, Vietnam’s core competency is related to labor intensive industries due to their low labor cost.

With 2,030 miles of coastline, Vietnam holds a strategic position for the maritime industry, seeing a 7% growth year-over-year in twenty-foot equivalent units (TEUs). Vietnam had started to invest in the growth of a Da Nang mega-port as early as 2016, which has promised to support 27.2M tons by 2030 and 92.5 million tons by 2045.

However, Vietnam is challenged by size constraints driven by underdeveloped infrastructure, as evidenced in dropping three spots on Agility’s Emerging Markets Logistics Index Top 20.

Mexico

Although hitting hard by the pandemic in 2020 with an 8.6% economic contraction, Mexico was able to make-up and surpass 2019 GDP ($1.269 billion) in 2021 ($1.285 billion). Despite economic turbulence, Mexico benefits from a strong trade-partnership with the United States as well as a private-backed investment in infrastructure.

Of the $44 billion committed, 33% is planned to go toward transportation projects, including highways, rail, ports and airports through 2024. With a trend of shippers looking to position closer to their customer, Mexico holds the highest forecast annual compound growth rate— tied with India—at 10%.

India

Like Mexico, India is projected to maintain a 10% annual growth rate and maintain Agility’s ranking at No. 2. India Goods and Services Tax, as well as private-sector investment, have been a catalyst for infrastructure improvement since its inception in 2017.

Due to this infusion of money, India has already built 3.5 million miles of roads, second only to the United States. However, India’s National Infrastructure Pipeline (NIP), a $1.2 trillion infrastructure program, will support continued investment.

Logistics related NIP calls to action are 34,000 more miles of road development; a National Rail Plan implemented by 2030 to support a multi-modal transportation solution with the goal of hauling 45% of freight on rail by 2030; and moves to address digital infrastructure to match the growing business demand and provide access to all citizens.

The Indian government is not just prioritizing interconnected transportation infrastructure, but also making a $94 billion investment in sustainability. The Jawaharlal Nehru National Solar Mission aims to deploy solar energy technologies to create favorable conditions for solar manufacturing capability.

Indonesia

Driven by government restrictions on business during the pandemic, logistics business activities have declined 50%, however current GDP growth indicates economic rebound.

The majority of the Indonesian logistics market is driven by transportation, predominantly road freight, accounting for 70% to 80% of total volumes within their borders. However, 90% of Indonesia’s exports are moved via ship.

Indonesia’s Ministry of National Development released a $412 billion infrastructure investment plan in 2019 to address the World Bank’s assessment of a $500 billion infrastructure investment gap in 2017.

Indonesia remains steadfast in its commitment to plan, aiming to finish the Trans-Sumatra Tolls Roads by December of 2022, effectively providing an additional 1,751 miles of roadway to travel on, with a commitment to complete construction of 3,000 more miles. The goal is logistics cost reduction as well as connectedness within the island to support maturing e-commerce market demand.

Malaysia

As ships have grown 2.9 times larger from Post Panamax II to Megamax-24, so must the ports that support their throughput. Malaysia now has two of the three largest ports of all emerging market countries with both ports achieving strong container volume increases in 2021.

Malaysia will look to grow port infrastructure to capture of scale driven by larger ships. Stating with a $179 million expansion in 2022 for the Port of Tanjung as well as multi-million, private-sector investment within facilities in Port Klang. The freight and logistics market in the region is expected to continue to grow, recording a 4% increase to CAGR through 2027.

Looking ahead

Through the end of this year and into 2023, shippers will have to continue to break the limits of supply chains, enabling physical organizations to do more with less and meet customers’ growing expectations for order fulfillment in a cost-efficient way.

Emerging themes to watch in the United States

After spending on freight in 2021, historic shippers are starting to reap the benefits of a softening truckload market. The DAT dry van load-to-truck ratio was at 4.57 in April, down 37% month-over-month and 21% year-over-year, with contractual rates surpassing spot rates in March 2022.

For the first time since June 2020, we’re starting to see normalization of route guide tender acceptance and a stability on spot market rates.

Shippers and carriers are shifting their concerns to the now historic rise in diesel prices. Truckload carriers and private fleet managers are
continuing to focus on basic operating efficiencies.

This includes, but is not limited to, fuel mileage being reduced by 3%, increase utilization of equipment, and implementation of electric vehicles. The question remains of how to mitigate risks related to energy consumption, which will be a theme in the United States moving forward.

Leveraging capital investment and technology to better support global logistics channels will unlock greater capacity and cost-efficiencies of emerging markets.

As shippers continue to pivot more and more emerging markets, toward supply chains need to be redesigned with economic diversification in mind, as well as sustainability and resilience. Though, keep in mind, global uncertainty and unrest will always affect supply chain networks.

Whether the issues arising are an increase in costs, a shortage of labor, or additional trade barriers, shippers need to quickly pivot to reimagine, build and operate supply chain networks that orchestrate change, simplify life, and positively affect business, society and the planet .

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