How will the next globalisation affect logistics?


One conjecture among globalisation experts is that the future holds a third wave of globalisation. As with previous waves, it could have a major impact on global goods flows.

In brief, the story goes that the first wave of globalisation commenced in the 19th century, when the cost of moving goods declined thanks to steam power.

Beginning in the late 1980s, the second wave took hold as an ICT revolution meant that the cost of communication and moving ideas fell dramatically, permitting companies to offshore production by taking advantage of low-cost labour in what are now emerging markets. As ICT got better and cheaper, it became easier to coordinate operations in multiple locations, encouraging companies to fractionalise production in order to benefit from the productivity gains of greater specialisation. This led to the architecture that underpins world trade today: global supply chains.

What will unlock the third stage of globalisation? In The Great Convergence, a book by Richard Baldwin, professor of international economics at the Graduate Institute, Geneva, the suggestion is that the cost of moving people will drop significantly.

As an aside, Baldwin asserts that the dynamics of the second stage of globalisation are not yet exhausted. He predicts that the next destination for low-wage manufacturing is East Africa, with its proximity to Europe, India and East Asia making it a likely choice. This is of course conditional on wages in the likes of Bangladesh and Vietnam rising sufficiently, as they did in China before them. Whether East Africa will emerge as the next low-wage manufacturing centre is one question posited in this year’s Agility Emerging Markets Logistics Index Survey.

But moving forward, how will the cost of moving people drop? Virtual immigration could be made easy through improving technologies such as telepresence and telerobotics. As Baldwin puts it, telepresence is basically “Skype that’s really, really good.” Holographic telepresence could become widespread, enabling engineers, designers, accountants, lawyers, professors etc. in developing countries to work in rich country offices and universities without actually being there. As for telerobotics, think hotel rooms in Oslo being cleaned by robots controlled by workers in Manila, or security guards in US shopping malls replaced by robots operated by someone in Peru. The whole idea is that it will be much easier to separate the physical application of labour services from the physical presence of labourers. Previously untradeable services will become tradeable. The third wave of globalisation could do to the service sector what the second globalisation did for the manufacturing sector, but perhaps with far sharper consequences. About two-thirds of all global jobs are in services.

What are the implications for logistics? Unlike the second globalisation which dispersed production across the world and broke it up into finer stages, such that flows of goods were directly affected, the impact on goods flows in the third globalisation would be far more indirect. Faster economic growth and higher standards of living in emerging markets would encourage greater imports. The dominant force reshaping global goods trade flows over the next few decades would be consumer demand in emerging markets (putting to one side the notion that improvements in manufacturing technologies like 3D printing could lead to a mass localisation of production).

Arguably, rising emerging market consumption may have been the most important force anyway. But if the third globalisation unfolds as predicted, consumption growth in emerging markets would clearly be intensified and likely dispersed more widely. Many logistics sectors would prosper, but in this version of the world where internet connectivity is more important than ever, perhaps e-commerce logistics would be the leading beneficiary.

Source: Transport Intelligence, August 24, 2017

Author: David Buckby

 

Ti’s upcoming report, Global Express and Small Parcels 2017, will examine which megatrends will shape the industry over the next few decades. The course of globalisation is just one force examined. Pre-order the report here.

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