<![CDATA[ Maersk and others struggle with fuel costs ]]> Container shipping is living up to its reputation for combining strong demand growth with poor profitability.

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Container shipping is living up to its reputation for combining strong demand growth with poor profitability.

The leading container shipping line Maersk issued a profits warning at the end of last week, stating that its new “expectation for earnings before interests, tax, depreciations and amortisations (EBITDA) is in the range of US$ 3.5-4.2bn and a positive underlying profit. The previous expectation for EBITDA was in the range of US$ 4.0-5.0bn and an underlying profit above 2017 (US$ 356m)”. The cause of this was higher bunker fuel costs which jumped by 28%. The problem was that even though freight rates were supposed to be firming, customers refused to pay the full ‘bunker-fuel surcharge’.

On Monday, Hapag Lloyd reported a not dissimilar problem, with profit growth also depressed. Stripping out the acquisition of United Arab Shipping Company (UASC), volumes increased 3.9% and freight rates were up 3% over the first half of the year. However, the company saw the price of bunker fuel rise from US$312 a tonne in H1 2017 to US$385 a tonne in H1 2018. Rolf Habben Jansen, Chief Executive Officer of Hapag-Lloyd described the first half of the year as being “shaped by clearly increasing fuel costs, higher charter rates and a slower than expected recovery of freight rates”. Although its acquisition pushed up EBITDA by 16% year-on-year, profits margins fell.

Earlier in the month, COSCO had a parallel experience, slumping to a loss caused by higher fuel costs. Yang Ming has also reported being hit.

Admittedly, oil prices have risen significantly and quickly over the past few months, driven by production problems in Libya, Venezuela and even Canada. However, this does not explain the inability to pass the prices on to customers. All these shipping companies report higher volumes, up at least the in low to mid-single digit percentages, reflecting robust global trade growth.

What appears to have happened is that freight rates had hit some form of equilibrium earlier in the year, an equilibrium that was unset by the sharp rise in fuel prices. The market simply was not strong enough to absorb this and so ‘margin compression’ was forced in the shipping lines. It suggests that consolidation amongst container shipping lines has so far not worked.

Source: Transport Intelligence, August 14, 2018

Author: Thomas Cullen

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<![CDATA[ What’s the hype around Hyperloop? ]]> Ti spoke to Juan Quintana, Freight Hyperleader at Hyperloop Transportation Technologies to discuss the potential logistical implications of Elon Musk’s transport masterplan, Hyperloop.

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Few entrepreneurs gain as much attention as Elon Musk. Whether its SpaceX or Neuralink, his radical visons of the future draw a frenzy of speculation and excitement.

Musk has already delved into freight transportation, with the roll-out of Tesla trucks – electric semi-trailers capable of pulling 36 metric tonnes 300-500 miles without refuelling. Hyperloop is a far more grandiose project. It is a transport mode that uses a sealed capsule inside a vacuum tube, propelled by magnetic levitation. The capsules could conceivably transport passengers or freight across vast distances at speeds of 600-1,000 km/h.

Taking the top possible speed of 1,000 km/h, Hyperloop would supposedly allow a 4 day truck journey, or 23 hour flight, to be completed in 16 hours. It is also claimed the cost is just 1.5 times more than trucking.

Of course, this does not account for the vast sums needed to build the brand new infrastructure in the first place. The lines require securely built, pipeline-type tube structures connecting cities. Arguably the development of high speed rail is a more feasible proposition.

Ti spoke to Juan Quintana, Analyst at Hyperloop Transportation Technologies to discuss the potential logistical implications of Elon Musk’s transportation masterplan.

He explained how potential suitors could use the system for inner city e-commerce deliveries for example. Hyperloop could give shippers the opportunity to plant large distribution centres further outside population centres, thus making savings on more expensive city warehouse space. Hyperloop is able to transport products into the city centre at rapid speeds, saving time despite the longer distances between warehouses and population centres. The system would allow larger distribution centres to serve multiple population centres at once. One touted proposal was for a Hyperloop connecting Barcelona and Madrid in just half an hour. A distribution centre built in the middle would have the ability to serve both centres.

Quintana argued this could give shippers the opportunity to get shipments to customers in one- or two-hour delivery windows. Currently, those providers that do offer such a service do so at a loss, but Hyperloop offers an alternative here. However, for this to work, handling and transportation issues at the first and last mile stages still need to be addressed. It is not clear that hyperloop would be any cheaper than current services. Additionally, with passenger transport being the most obvious application of the technology, there is no guarantee that freight movement would gain precedence. 

The system has a variety of other potential implications. DP World and Virgin have partnered on a Hyperloop project at the port of Dubai. The limitations for inner city delivery clearly apply here too, and the system will require a vastly different approach to handling than ordinary container freight movements, which is where DP World will look to lend their expertise.

Ultra-high-speed freight transport is a highly desirable prospect. Time-sensitive freight accounts for one third of global cargo by some estimates and the rapidly expanding e-commerce market and growing “on-demand” consumer culture means this desire is only likely to heighten. Whether Hyperloop can fulfil this remains to be seen. There is a substantial amount of work to be done to ensure the technology’s benefits outweigh its limitations.

Source: Transport Intelligence, August 14, 2018

Author: Andy Ralls

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<![CDATA[ Slow moving opportunities in fast paced markets ]]> New research offers a timely reminder that even some of the fastest paced markets in the world move at generational speed.

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As each August rolls around, Ti’s focus shifts to emerging markets as work gets underway on the Emerging Markets Logistics Index, sponsored by Agility. Taking in data and primary evidence across market size and growth, business environment compatibility and connectedness of infrastructure, for the last decade the Index has provided one of the most complete and detailed looks at the development of and demand for logistics services in emerging markets across the globe.

A theme which often comes up in discussion of emerging markets is the rise of consumer demand as middle classes expand. There are a number of nuanced drivers of this rise. Some are very direct and some are more abstract, but they all focus around two central points – increased buying power of consumers, and easier to access to those consumers.

On the increased buying power-side, we’re used to seeing the development of skills and better levels of education as indicators of a rising middle class. As skills develop and opportunities become available, many countries and business have been able to move up the value chain. It’s a well-worn path.

On the easier access-side, often cited examples of development include better and more widespread internet connectivity, allowing for increased productivity and the development of e-commerce, for example, as well as infrastructure development. A less direct increased access driver is a business environment which makes it easier for domestic and foreign businesses to establish operations, employ local populations, and invest in the development of their business. The Middle East has a number of markets that have performed superbly in this regard, with the UAE, for example, consistently topping the market compatibility ranking of the Agility Emerging Markets Logistics Index for the last decade.

It’s easy, though, to overlook the length of time it takes for markets to fundamentally address the underlying drivers that promote such benefits. While it’s hugely significant that vast swathes of the global population are seeing their incomes rise, there is a wide variation in the pace at which markets are able to move the income levels of populations into areas which create significant and sustainable opportunities for logistics service providers.

A piece of research from the OECD is highly relevant in this regard. In assessing income mobility across generations, the OECD found that across member nations it takes an average 4.5 generations for a low-income family (defined as the bottom 10% of earners) to approach the mean income in their societies. The shortest number of generations for the shift to occur (2) can be found in Denmark, and it’s perhaps unsurprising that the other top spots are made up of developed nations (indeed, Scandinavia takes all top 4 spots, with 3 generations needed to bridge the gap in Finland, Norway and Sweden).

Income Mobility Across Generations

Source: OECD

 

So far as emerging markets go, the results are less than optimistic. At 6 generations, Chile and Argentina perform best, while China and India (7), Brazil (9) and Colombia (11) point to the scale of the challenges faced to promote the poorest member of their societies into the types of social grouping that is so often cited as the major attraction of emerging markets – the middle class.

While the research only addresses a small and specific section of society, with other groupings likely to take less time to approach mean salary level, the implication is clear – this is not a quick fix, it requires coherent and ongoing policy to change the situation, and that it will take longer than many perhaps expect. In 2018, we’re far removed from an era of opportunistic speculation in emerging markets, and as we move towards another edition of the Agility Emerging Markets Index, this research is a timely reminder that even some of the fastest paced markets in the world move at generational speed.

Source: Transport Intelligence August 9, 2018

Author: Nick Bailey

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<![CDATA[ DP World develops new approach with Unifeeder buy ]]> The global port terminal operator DP World has bought a shipping line.

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The global port terminal operator DP World has bought a shipping line.

The Dubai-based terminal operator announced yesterday that it has taken control of Unifeeder Group, a Danish shipping company specialising in the provision of ‘feeder’ services, shipping containers between larger and smaller ports in Europe. Unifeeder’s enterprise value is estimated by DP World to be €660m, however it is unclear what the mix of debt and equity is. Bearing in mind that this company is described as “asset light” by DP World, it is to be assumed that the company’s ships are all chartered. Unifeeder’s fleet comprises 56 vessels with an estimated capacity of over 40,000 TEUs.

Unifeeder was bought from the private equity company Nordic Capital. DP World state that Unifeeder had revenues of €510m in 2017 with “EBIT margins in line with other asset-light logistics operators.” This would suggest a percentage in the mid-single digits, which would be respectable for a container feeder operator. It is worth noting however that DP World described Unifeeder as “cash generative and operates on a highly flexible cost base”.

The market for this sort of service is tough, with the dominant clients being large deep-sea container lines. So why would DP World buy Unifeeder? It appears to be another step in its strategy of improving margins through investment in services beyond container terminal operation. Last year it bought warehousing operations in India and South America for several hundred million dollars. While the warehousing market in emerging markets market is often highly attractive, this is something that cannot normally be said for container feeders in Europe. Presumably DP World are hoping to offer better integrated services to clients, leveraging economies of scale and knowledge of operations. It is also possibly seeking to offer services that bypass increasing landside congestion around major ports. Delivering on this will require good information management. Although the business model of Unifeeder appears flexible, previous experience suggests this type of vertical integration can be hard to make work.

Source: Transport Intelligence, August 9, 2018

Author: Thomas Cullen

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<![CDATA[ Agility reports strong Q2 results amid technological evolution ]]> Agility has reported double-digit revenue and earnings growth in Q2, primarily on the back of strong forwarding volume growth.

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Agility has reported double-digit revenue and earnings growth in Q2, primarily on the back of strong forwarding volume growth.

Agility’s revenues were up 12.3% to KWD384.2m*, while EBITDA improved by 13.6% to KWD37.1m.

The logistics division, Global Integrated Logistics (GIL), saw revenues increase by 13.4% to KWD289.3m. Net revenues however rose by just 5% to KWD66.7m. Revenue and net revenue growth rates for the first half were 14.5% to KWD567.4m and 6.4% to KWD131.3m respectively.

Air freight volume growth in Q2 was 14% year-on-year, with Agility noting “stable yields”. Air freight net revenues were up by 21.9% in Q2 and 20.3% in the first half. Conversely, ocean freight had “lower yields”. In Q2, container volume increased 8.2%, though net revenues increased by 7.4% in Q2 and 7.3% in the first half.

Geographically, air freight and ocean freight growth were strongest in the Americas, Asia Pacific and Europe, though Agility did not provide precise numbers.

A major event in the quarter was the launch of Shipa Freight, Agility’s online rate quotation and booking platform targeted at SMEs. Agility is just one of a string of large forwarders which have launched such platforms in recent years, with Ti’s latest report, Global Freight Forwarding 2018, examining how digital forwarders and spot market platforms have spurred the largest forwarders to adjust their strategies and embrace technological development. Agility did not mention Shipa Freight directly in its Q2 results press release, but asserted that “GIL is accelerating its digital transformation to increase the efficiency of its business processes, gain business insights, develop innovative logistics solutions, differentiate its products and better connect to its customers.”

The Contract Logistics segment of GIL “continued its steady growth, primarily in the Middle East and Asia Pacific, as a result of new business and effective utilization of facilities”. Net revenues grew 3.2% in Q2 and 4.5% in the first half.

Overall, GIL’s net revenue margin was 23% in Q2, down from 24.9% a year earlier due to “yield degradation in Road freight and Project Logistics, primarily in the Middle East and Europe”. Its EBITDA margin was 3.2%, slightly lower than 3.6% in Q2 2017.

As for the Infrastructure division, revenue grew by 9.5% to KWD97.5m. EBITDA increased by 16.8%, after adjusting for the impact of the US government settlement in 2017.

Agility has concluded its Phase I development in Riyadh, Saudi Arabia, of 80,000 sq m of warehousing capacity and has started with Phase II, for which an additional 120,000 sq m will be delivered in 2019. Agility also noted that its projects in Africa are “progressing according to plan”, with Agility Industrial Real Estate moving ahead with its development in Ghana and prepares to start new developments in Mozambique, Nigeria and Cote d’Ivoire.

Perhaps the Infrastructure division’s most significant event in the quarter was its agreement with the Suez Canal Economic Zone to develop East Port Said’s logistics and customs infrastructure in June. Such developments highlight that Agility is a rare breed of large logistics provider, with few others involved in such work, particularly the modernisation and automation of customs processes.

Commenting on Agility’s results, Tarek Sultan, Agility Vice Chairman and CEO, said: “Our second quarter results were in line with expectations and consistent with the previous growth trend the company has been seeing. Agility’s Infrastructure companies performed well, as did our logistics business, which witnessed another quarter of volume and revenue growth despite margin pressure.”

Source: Transport Intelligence, August 7, 2018

Author: David Buckby

*KWD=$3.30/KWD=€2.85

Ti’s new Global Freight Forwarding 2018 report contains full analysis and insight from an interview-based research programme. As well as extensive depth and detail on the threat and transformation posed by tech forwarders, further analysis of the benefits of introducing new technologies into forwarding processes, the opportunities and challenges of serving SME shippers and the potential of African markets is included. Click here to download today.

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<![CDATA[ Renewed US sanctions squeeze Iranian logistics ]]> Once again, the US is tightening its grip on the flow of trade into Iran.

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Once again, the US is tightening its grip on the flow of trade into Iran.

The sanctions pursued for the decade prior to the ‘Joint Comprehensive Plan of Action’ (JCPOA), which led to the lifting of UN sanctions in January 2016, were brutal for economic activity in and out of Iran. Their re-imposition seems likely to be at least as brutal, with the US now pressing for Iran to be excluded from the SWIFT banking transaction system.

Even prior to the formal imposition of sanctions on Tuesday August 7, key sectors of the Iranian economy had suffered badly. Automotive assembly in Iran had been a prominent destination for foreign investment. This has almost come to a halt. The automotive sector in Iran is dominated by ‘Complete Knock-Down’ (CKD) kits from Renault, Peugeot-Citroen and to a much lesser extent Chinese VMs. In a good year these can account for several hundred thousand TEUs, generally fed into Bandar Abbas port via Dubai and are one of the largest container trades. With the announcement last week that Renault was ceasing operations, something that Peugeot-Citroen decided last month, the CKD related container traffic will fall heavily. Possibly the Chinese VMs may increase inputs to compensate but they are much weaker in this market.

Shipping any cargo into Bandar Abbas is becoming complicated. The leading western container lines have effectively withdrawn from services into Iran, presumably leaving shippers to arrange their own feeder services from Dubai. Once again, the Chinese carriers may be the only option.

Although the success of sanctions in delivering their political objectives is debatable, the effects on the Iranian logistics economy of the country’s isolation has been enormous. Despite all of the talk of the development of Chabahar port on the Gulf of Oman coast, Iran lacks a large modern port. Bandar Abbas dominates non-hydrocarbon traffic yet it is unable to take any ship larger than 11,000 TEUs. The port needs to be able to move large volumes of containers into the main population centres in Northern and Western Iran, yet only now is even moderate investment in rail taking place and that is driven largely by the Chinese. Rather, the country is dependent on its less-than-adequate road system to move almost everything.

The comparison with its neighbours along the Gulf is painful. Saudi Arabia and the UAE are the location for some of the world’s largest concentrations of logistics infrastructure, such as the huge container port complexes and airports of Dubai or the vast petrochemical complexes that run west from Ras Tanura to the Kuwaiti border. Certainly, the capital for these developments on the Arabian Peninsula was provided by revenues flowing from oil and gas production, yet Iran also has vast hydrocarbon reserves, with the South Pars field alone accounting for around half of all global gas reserves.

Iran requires major investments in its logistics capabilities. New ports, airports, roads and railways are badly needed. The economic impact of such investments would be transformative for the Iranian economy and it would represent a valuable opportunity for the global logistics sector. However, it appears unlikely that this will happen until the political and strategic conditions in Iran change, with the major proviso that the present situation offers significant opportunities for the Chinese. 

Source: Transport Intelligence, August 7, 2018

Author: Thomas Cullen

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<![CDATA[ Forwarding market buoyed by resurgence in global demand ]]> Broad-based growth in the global economy led to a substantial real terms expansion of the forwarding market in 2017.

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The resurgent global economy led to a substantial expansion of the freight forwarding market in 2017. Buoyed by significant international trade growth, the market grew by 8.0% in real terms (holding prices and exchange rates constant).

In 2017, the rapid acceleration in global demand – at least compared against the last five or six years – meant air freight forwarders felt the effects more profoundly. The air freight forwarding market grew by 10.2% in real terms in 2017.

This was largely down to the need to re-stock inventories. The acceleration in growth, which was largely unanticipated at the beginning of the year, meant shippers needed to get products to market more rapidly. Faced with higher than expected demand, shippers utilised more expensive, but faster air freight services over sea. Growth in the air freight forwarding market was also led by strength in key vertical sectors, such as pharmaceuticals and e-commerce.

This is not to say that the sea freight forwarding market had a poor year by any stretch. Growth of 5.6% was twice as fast as the year previous and the strongest since 2011. Its market is more closely aligned with international trade volume growth than the air freight market. The IMF’s estimate for international trade volume growth was between 5.2% and 5.5% in 2017.

Overall, forwarding growth was broad-based, but increased demand and manufacturing output from North America and Europe was pivotal to the resurgence. China’s market also experienced strong growth, as its economy reversed the downward growth trend of the past six years. Its shift towards consumer spending is significantly altering trade patterns. During the year, Lloyd’s Loading List reported that eastbound air freight volumes (Europe-Asia) in certain key markets had begun to exceed westbound volumes for the first time.

There were also stark turnarounds in South America, Sub-Saharan Africa and Russia, Caucasus and Central Asia. Growing Chinese influence is playing a big part in each region’s development. Growing demand for fresh agricultural produce from Brazil, increased infrastructure investment in Ethiopia and growing trade links with Russia related to the Belt and Road programme are all examples of positive contributing factors to the countries’ respective forwarding markets.

Looking ahead, the market faces significant downside risks in the short to medium term. The growing prominence of regional trade blocs will tend to favour road-based transport, and particularly in Asia, low value, low margin shipping. Near-sourcing induced by smarter manufacturing techniques and rising wages could lead to a shift from inter- to intra-regional trade. China’s Belt and Road ambitions make the possibility of East-West modal shifts to rail a genuine option for some shippers. Protectionism could be detrimental to volumes on key trade lanes.

Even so, the market is expected to grow at a real 2017-2022 compound annual growth rate (CAGR) of 4.7%. This would prove to be stronger than the CAGR of the previous five years (3.7%), indicating that growth in 2017, although exceptional, is a sign of good things to come.

Source: Transport Intelligence August 2, 2018

Author: Andy Ralls

Ti’s new Global Freight Forwarding 2018 report contains market sizing and forecasting of the air and sea freight forwarding markets. In addition it provides information on the threat and transformation posed by tech forwarders, further analysis of the benefits of introducing new technologies into forwarding processes, the opportunities and challenges of serving SME shippers and the potential of African markets. Click here to download today.

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<![CDATA[ Lufthansa and Air France-KLM see cargo strength despite other problems ]]> The air transport market continues to be a volatile place with diverging performance by ‘legacy’ airlines despite strong demand in both passengers and freight.

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The air transport market continues to be a volatile place with diverging performance by ‘legacy’ airlines despite strong demand in both passengers and freight.

For Lufthansa, cargo has now become an asset rather than a liability. A few years ago, the business was a consistent source of losses and shrank substantially. However, the first half of 2018 has seen the division help haul the wider airline into the black. Revenue at Lufthansa Logistics – also know as Lufthansa Cargo – climbed 12% year-on-year to €1,301m whilst ‘adjusted’ EBIT (Earnings Before Interest and Tax) jumped by over half, from €78m to €125m. A strong market and a reduced cost based gave Lufthansa the ability to price aggressively. EBIT margins are up almost 3% year-on-year at 9.6%. In contrast the rest of the business saw results complicated by interruptions in services from strikes, write-offs and increases in fuel costs leading to 5.8% higher revenue but a 3.2% fall in EBIT.

The situation at Air France-KLM was less positive. Although revenues in the cargo division were up by 6.9%, cargo volumes measured in tonne-kilometres fell by 1.4%. Strangely Air France-KLM have not broken out their profit numbers, however a rise in revenue per tonne-kilometre suggests underlying improvements in profitability. The problem is that this is being obscured by the problems of the rest of the company, with operating profits falling by two thirds and the company experiencing a net loss of €159m for the half year. Of course, much of this is down to the continuing strikes at Air France-KLM.

Problems are also suggested at Cathay Pacific. Reports have emerged of a significant further reduction in jobs at the airlines’ cargo business beyond its Hong Kong base, as well as in marketing and other functions. Cathay is another traditional airline struggling with the effects of low cost competition.

Air transport generally is seeing good growth at present. Cargo in particular is seeing a favourable balance between supply and demand. However, these market conditions will not last forever. Large established airlines have to optimise their profits during upturns such as this if they want their businesses to be viable over the long term. The indications are that some are struggling to achieve this.

Source: Transport Intelligence August 2, 2018

Author: Thomas Cullen

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<![CDATA[ Cyber-attacks and skills shortage top causes of supply chain disruption ]]> The 2018 World Bank Group Logistics Performance Index finds that labour shortage, resilience to cyber-attacks and sustainability of supply chains are the top concerns for supply chain professionals.

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High-income countries remain the global leaders in trade logistics, finds the 2018 World Bank Group Logistics Performance Index (LPI).  Overall, the score profile of the entire set of more than 160 countries has remained similar since the 2007 edition, with Germany recording the highest aggregate score over the past four LPI editions.

In addition to being an important benchmark for the individual countries’ performance along the logistics supply chain, the Index captures the main trends and challenges perceived by logistics professionals. The latest edition of the Index highlights three main challenges, labour shortage, sustainability of supply chains and resilience to cyber-attacks.

Shortage of logistics professionals in both developed and developing countries has been identified as one of the greatest concerns among supply chain professionals. While the problem persists in both developed and developing countries, the nature of labour shortage differs across the board. Developing countries see the most severe skill shortage at the managerial level, for instance in filling senior supply chain management positions. On the other hand, developed countries seek qualified blue-collar workers, such as truck drivers. These findings are a reminder that despite extensive mechanisation and automation, logistics remains a people business and dependent on a rather specific set of skills and competencies. As such it requires action not only from the private sector but also from policy makers which are encouraged to introduce national initiatives to promote logistics competence and train people for logistics positions.

Sustainability of supply chains is another trend that has grown over the last couple of years, with the Index highlighting that environmental consciousness is on the rise. Growing awareness of and a demand for green logistics is higher in high-income countries than in low-income countries, confirming that demand for sustainable supply chain management goes hand in hand with logistics performance.

Threat of cyber-attacks emerges as the third theme in the 2018 LPI Index. With a significant increase in the scale and severity of malicious cyber activity globally in the past few years, it should come as no surprise that more countries perceive cybersecurity threats a risk to logistics. When we take a look at the recent cyber-attacks of Maersk Line, FedEx and COSCO, it becomes evident that logistics businesses have specific vulnerabilities which make it all the more important for them to defend their operations from cyber threats. Whilst the impact of cyber-attacks on logistics operations is recognised across both developed and developing countries, high-income countries are more likely than low-income countries to be increasing their preparedness for cyber threats. That cybersecurity safeguarding efforts are not high on the agenda of low-income countries should come as no surprise given that they have to deal with more pressing issues to boost their national competitiveness, such as improving infrastructure for instance.   

In summary, the three key areas of disruption logistics companies need to focus on going forward are labour shortage, sustainability of supply chains and cyber-attacks. While both evolutionary and revolutionary measures on the part of private companies will be required to meet these challenges head on, national logistics competitiveness is unlikely to improve without the public sector’s interventions and policies.

How does your company handle the labour shortage? Take part in our short survey and as a thank you for participating, you will receive a short research paper of the aggregated results and a chance to win an iPad. If you would like to take part in the study click here.

Source: Transport Intelligence, July 31, 2018

Author: Violeta Keckarovska

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<![CDATA[ US considers its own ‘One Belt One Road’ initiative ]]> China’s ‘One Belt One Road’ programme has amplified the role of logistics infrastructure in power politics. It appears that the US has woken up to this and is offering its own version of logistics driven development.

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China’s ‘One Belt One Road’ programme has amplified the role of logistics infrastructure in power politics. It appears that the US has woken up to this and is offering its own version of logistics driven development.

In a speech on Monday, the US Secretary of State Mike Pompeo stated that “I am here to say emphatically that the Trump administration is expanding our economic engagement in the Indo-Pacific . . . America will be there and American businesses will be there. The American people and the whole world have a stake in Indo-Pacific peace and prosperity. That is why the Indo-Pacific must be free and open.”

The State Department’s PR staff have briefed that this is code for offering nations in the Pacific, particularly India, an alternative to China for the financing and building of logistics infrastructure, as well as digital and energy assets.

The initial funding of US$113m offered by the US was described by Mr Pompeo as a “just a down-payment on a new era”. 

One of Mike Pompeo’s points of emphasis was that the US does not resort to secrecy or opaque financing, rather “thanks to [our] history of economic and commercial engagement, America’s relationships throughout the Indo-Pacific today are characterized by mutual trust and respect. American friendship is welcomed, and American businesses are recognized for their ingenuity, reliability, and honesty”.

In what was quite an aggressive speech, this was clearly aimed at accusations against China of less than open conduct in the negotiations around the building of major transport projects such as a Malaysian railway project which the incoming Malaysian Government has viewed as too expensive and insufficiently accountable.

The speech was given as part of a wider conference on India-US relations. India’s infrastructure needs remain very large. Although some progress has been made on new container terminals and airports a huge amount remains to be done. The Indian Government has suggested that the country has what it calls an ‘infrastructure deficit’ requiring a further US$4.5 trillion in investment.

Faced with such a requirement India has felt compelled to take the opportunity that China’s ‘One Belt One Road’ initiative offers and China is eager to enter such a large market. This is despite India and China perceiving each other as ‘strategic rivals’. That said, India is clearly looking for other options and a closer relationship with the US is one of them. For such a relationship to prosper the US will have to provide a lot more than US$113m and India will have to at least attempt to address fundamental weaknesses in its planning system. If this is done, then the opportunity for the creation of very large infrastructure projects appears significant.

Source: Transport Intelligence, July 31, 2018

Author: Thomas Cullen

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