Emerging economies need more efficient logistics

DHL is urging governments and regulators to decrease the administrative burden, pursue a smarter approach to customs and security, and focus on infrastructure investment to unleash the growth potential in emerging economies. Donald Urquhart reports.

Emerging economies can reduce logistics costs by 30 per cent, shorten transit time by 65 per cent and gain 20 to 40 per cent more trade by 2020 if more efficient logistics practices are applied, said the CEO of DHL Global Forwarding, Hermann Ude speaking to media in Tokyo ahead of the APEC CEO Summit 2010. The logistics company has identified three key approaches, which urge governments and regulators to decrease administrative burdens, reform customs and security processes, and focus on infrastructure investment, to help emerging economies improve their logistics efficiency. ¡°World trade as a percentage of GDP has increased from a third to more than 50 per cent over the past 30 years, making international trade the most important driver of economic growth and rising living standards. However, inefficient logistics in many economies are still a roadblock to trade growth,” said Ude. For example, BRIC countries – Brazil, Russia, India and China – on average require twice as many export or import documents versus ¡°best-inclass” countries such as Singapore and Germany, according to DHL. ¡°High paperwork requirements post a challenge that pushes complexity in logistics procedures and administration can be the most time consuming element in the life of a shipment,” Ude said. In terms of customs and security, BRIC countries carry out 10 times more physical cargo inspections than best-in-class countries, without notable improvements in security, DHL said. ¡°Increasing security levels via process controls is the optimal solution and aligning standards globally will be beneficial both in increasing security and in reducing costs,” Ude said. The way forward is through improved intelligence, not sole reliance on physical security measures. Information sharing, facilitated by stronger cooperation between businesses, industries and public authorities all need to take place to make the world a safer place, he said. Infrastructure investments in key areas such as strategic ports and interlinked road and railway systems are also needed if costs are to remain competitive with growth maintained. ¡°Infrastructure bottlenecks or substandard transport facilities can force logistics companies such as DHL to use sub-optimal routes in order to guarantee delivery and this increases costs,” Ude said. With emerging economies growing two to three times faster than developed countries, infrastructure limitations could seriously hamper competitiveness in the long-term. However, strategic investments in key areas could contribute 6 per cent of the 30 per cent reduction in logistics costs possible by 2020. Volatility in air cargo market Looking at the current environment for air cargo, Ude confirms what many others have also observed, that the volumes for this year’s peak season were lower than usual. ¡°I think overall everyone is very much on the watch, you see it with carriers not investing in additional capacity on a number of lanes and they still hold back which is why the price still remains high, although the volumes are good to soft and not bullish at this point of time,” he said speaking to Payload Asia. He notes that one of the lasting impacts of the crisis is that no one has a long term view and confidence, meaning more cautiousness with investments. ¡°You could see in 2008 that people continued to invest when the signs showed there would be a continuing softening of the market. Nobody wanted to see the signs on the wall. But now people much more cautious and I think that is what we will see continuing in 2011. ¡°There will be growth, but it will be on lanes where it maybe isn’t expected as much, not the classic transpacific, it will be the intra-Asia, Asia-Africa, Asia-Latin America and Middle East will play a role. Europe will depend on currency, with a low euro driving European exports,” he adds. The current environment going forward is characterised by a much more volatile and much more segmented than prior to the crisis and in that sense. One of the key drivers of air cargo is pre-ordering by retailers. Ude cites the example of the fashion industry where traditionally 50-60 per cent of fashion is pre-ordered. Generally that means when the fashion shows come on, the garments are ordered and delivered four months later, but now the retailers are deferring their pre-order so they only put in small pre-orders and put the real order in only two or three months before the expected demand. ¡°That means the whole supply chain is more volatile and in that way a bit more compressed, but it comes with a cost and everyone sees that, so I believe it will smooth out again,” Ude says.