As shippers continue to pivot toward more emerging markets, supply chains need to be redesigned with economic diversification, sustainability and resilience in mind
The US$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 US$6.55 trillion by 2027, coupled with continued growth in e-commerce and the rebound of contract logistics, have 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 pandemic and Russia’s invasion of Ukraine could result in a potential €920 billion cumulative loss to gross domestic product (GDP) across the Eurozone by 2023, Logistics Management reported.
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 omnichannel fulfillment platforms with dynamic order allocation capabilities to meet ever-changing customer demands.
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.
Thailand
Thailand continues to make large strides in its economic development. Logistics investments have been fast-tracked as the country obtains more market share. It had previously broken ground in 2021 on mega-projects worth US$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 of 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 US$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
Vietnam has positioned itself as a key player associated in the Asia-Pacific (APAC) region, with e-commerce spending growing 24% year-over-year. As a benefactor in the U.S.-China trade war, as manufacturers are forced to diversify supply chain 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 27.2 million tons by 2030 and 92.5 million tons by 2045.
Mexico
Although hit hard by the pandemic in 2020 with an 8.6% economic contraction, Mexico was able to make up and surpass 2019 GDP (US$1.269 billion) in 2021 (US$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 US$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 customers, Mexico holds the highest forecast compound annual 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, has 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 US$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 the rail by 2030; and moves to address digital infrastructure to match the growing business demand and provide access to all citizens.
Indonesia
Driven by government restrictions on business during the pandemic, logistics business activities have declined by 50%, however current GDP growth indicates an 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 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 economies of scale driven by larger ships. Stating with a US$179 million expansion in 2022 for the Port of Tanjung Pelepas as well as a multi-million, private-sector investment within facilities in Port Klang. The freight and logistics market in the region is expected to continue to grow, registering 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 physical limits of supply chains, enabling organizations to do more with less and meet customers’ growing expectations for order fulfillment in a cost-efficient way.
