Increasingly complex supply chains require new logistics services

World trade is the most important determinant of the logistics market. Macro-economic developments such as the growth of the ‘China trade’ has had an enormous effect on areas such as contract logistics, freight forwarding and even comparatively domestically focused sectors such as road and rail freight. Therefore, understanding the dynamics of world trade is essential to understanding the future prospects for the logistics sector.

The World Trade Organization published a report in late July designed to provide such an understanding. Although the report is rather long-winded, it does outline some interesting points. For example, it recognises the importance of supply chain management in the world’s economy, saying that “over recent decades, one of the most important changes in the nature of international trade has been the growing interconnectedness of production processes across many countries, with each country specializing in particular stages of a good’s production.” It continues by observing that “given that the existence of global supply chains changes our perception of international trade and has profound implications for the analysis of trade patterns, an accurate measure of trade flows in value-added terms is necessary to correctly assess future trade scenarios.”

This is a key point to recognise. As supply chains are increasingly complex, the logistics services that are needed to support them will be increasingly complicated. The past is not necessarily a guide to the prospects for the future.

This is compounded by the increasing complexity of world trade as developing economies broaden their economic base and thus import and export more goods. The combination of complex supply chains and increasingly complex geographical networks will result in growth in intra-continental trade patterns.

Indeed, the picture is so complex that the WTO appears to give up on the task of projections of trade growth, commenting that “despite some common trends and broad insights that can be derived from these studies, no comprehensive picture emerges regarding economic activity and global trade patterns in the decades ahead”.

However, for anyone in the logistics sector, the very complexity and volatility of world trade is an important observation. The future is unlikely to resemble the dynamics of the past twenty or so years, with huge volumes of finished goods emerging from China to be delivered to western markets. Rather, the pattern of trade will fragment with, for example, greater trade between developing markets, whilst supply chains will be more agile and geographically extensive. This will require markedly different types of services from LSPs from than those available today.