The international economy is not what it used to be. Even as Europe addresses severe debt and the United States works to grow back into prosperity, countries in Africa, Asia and Latin America are booming. Logistics is inherently international, and the task of air cargo stakeholders is to keep ahead of the trends, capitalizing on opportunities as they arise.
To help identify these opportunities, Business Insights spoke with Toby Edwards, vice president at Agility Logistics. His company recently released the Agility Emerging Markets Logistics Index, which compares 41 major emerging markets and identifies the key attributes that make a market an attractive investment for logistics companies. In Part 2 of this interview, Edwards reveals some key insights into the powerhouse economies of China and Latin America.
Business Insights: How does weakening demand in the European Union and United States impact air cargo trade lanes from China? Will China remain a dominant emerging market?
Toby Edwards: Though inevitably air cargo flow from China is slowing as the EU and U.S. economies continue to struggle, all indicators point to China as an unstoppable economic force over the coming years, driving growth across the entire region. In the 2012 Index, China actually increased its lead at the top of the Index, improving its scores in all three categories – market size and growth, market compatibility and market connectedness. China has the best transport connectivity of the larger economies, with strong shipping and infrastructure links, as well as reasonably unproblematic customs procedures.
The rest of Asia as a whole is doing well. India will continue to surge ahead simply because it is such a big market, even though it needs to improve its service sector, urbanization of population, distribution of wealth, FDI, market accessibility, security, shipping connections, airport infrastructure, transport infrastructure, customs and border controls.
Malaysia has continued to strengthen its attractiveness and offers strong prospects for foreign investment, offering easy market access. Of the larger economies, Malaysia has the best transport connectivity, with strong shipping and infrastructure and unproblematic customs procedures. Indonesia remains impressive and is undoubtedly a rising star. For investors, the country is highly attractive in terms of market size and growth. Thailand also has high market potential, because of its market size and growth, as well as market connectedness. And Vietnam is a market to watch. It offers a stable environment and near-sourcing potential as China’s domestic economy grows. In addition, on-going investment in the country is improving what has been a weak transport infrastructure.
BI: In the Index, South America appears to have the greatest number of countries showing improvement. What changes are driving this improvement and how would you compare them with those in Asia?
Edwards: Brazil clearly dominates the Latin American region and continues to make improvements in its market compatibility, market size and growth prospects – even in spite of ongoing infrastructure challenges. Investment is set to intensify in the run up to the 2014 World Cup and 2016 Olympic Games. So Brazil has a huge future.
In general, the region lags behind Asia in affording the sheer size of business opportunity and exponential growth we see there. But there is really interesting movement in other markets such as Argentina, Bolivia and Paraguay – these are in our view all markets to watch closely in coming years.
Argentina is performing strongly in its exports of agricultural goods and raw materials to Europe while the fastest growing trade lane out of South America is Bolivia, growing at an impressive CAGR of 20 percent in the last six years. In terms of air transport, Colombia, Chile and Peru are all now beginning to export a large quantity of perishable goods by air.
BI: China, India and Brazil remain the top emerging market countries. How do the ongoing opportunities there compare with smaller, but easier to enter markets? What are the advantages of pursuing business in these smaller markets over such larger ones?
Edwards: First, there is no doubt that the opportunities in the coming decade in China, India and Brazil will be huge. Agility has been building infrastructure and networks in many of these emerging markets over many years now, so we are well placed to take advantage of those opportunities.
As to the smaller markets, there are two things to note. First, many large firms are adopting a “China plus one” strategy, putting an additional production base in a lower-cost country in Asia, which helps make supply chains more disaster proof. This trend of course is helping economic development across the region.
Second, while the BRIC (Brazil, Russia, India and China) economies have attracted large amounts of foreign investment since the 1990s, other rising stars are surfing on the “near-sourcing” trend of optimizing the distance between supplies, production and markets. All of these economies offer stable environment and fast growth. I wouldn’t want to lump all smaller markets into one category – each market is unique – but I would point to markets like Indonesia, Vietnam and Turkey as smaller markets that are doing well, opening up to business and offering good opportunity in the future.
Read Part 1 of the discussion with Toby Edwards.