Digest: April 2017

Money might make the world go round but it is investment in infrastructure which gives grist to the logistics mill. A wild mixture of metaphors and idioms for a single sentence, to be sure, but therein lies truth: the quality of a nation’s transport infrastructure – roads, railways, bridges airports and ports – is critical to the bottom line success of forwarders.

A truck stuck in traffic for two hours on the M6 or waiting to load at Heathrow airport is an inconvenience. If it happens every day, the cumulative effect can be devastating. Delays impact labour costs and asset productivity which drags on long-term profitability and the ability to expand operations. Higher costs are passed on to customers.

When inefficiencies are extrapolated across all the businesses that rely on a nation’s transport system the stakes rise still further. Put simply, efficient infrastructure spurs national economic growth and job creation. Broken or inefficient logistics systems have the opposite effect.

All of which explains why politicians are so keen to associate themselves with shiny new infrastructure developments. In the UK, the Conservative government has signalled greater state intervention in the economy, including the upgrading of infrastructure via a £23bn national productivity fund. After years of under-investment, the logistics and forwarding industry watches on in hope.

The European Union is derided by many but anyone who has used the continent’s networks of cross-border high-speed trains is impressed by the joined-up thinking the European Commission has delivered on transport investments. It is one of the few achievements of ‘Europe’ not regularly attacked by populists.

In the US, President Donald Trump continues – to put it mildly – divide opinion. But when he talks about building new infrastructure, he fleetingly looks capable of bridging the vast political gulf to the Democratic party. Trump’s plans to invest in US infrastructure have also buoyed stock market prices of those that will construct them and rely on them. It is no surprise that US logistics companies are fully behind The President of Tweet on this issue, if only this one. A visit to a US airport is like stepping back in time to the 1980s. US roads and waterways are in similar states of disrepair after decades of neglect.

Brazil’s infrastructure shortfall is even more daunting. Exports of soybeans now total more than 50m tonnes per annum, for example. But earlier this year heavy rain and peak seasonal traffic on highway BR163 made the road almost impassable. At its worst, the 620-mile route which runs from soybean source areas in Mato Grosso to northern ports via the Amazon River was taking 14 days – one way. This saw trucks diverted hundreds of miles to southern ports adding 40% onto the loaded costs of grains. Shippers estimate that the country needs to spend more than USD$200bn on new ports, railways and barge systems if the country is to realise the potential of its raw materials export industry. For a country only just coming out of recession and with a political class beset by corruption charges that is a tall order.

Building new roads, railways and airports is no easy task. While the majority of people might agree with the macroeconomic benefits of new transport systems, most people want only the benefits. For UK readers it is worth noting that Nimbyism – the Not In My Back Yard tendency – is just as common in Germany, Brazil and the US as it is in suburban Surrey. Indeed, it is a common feature of all functioning democracies. Voter resistance carries political weight.

In Indonesia, for example, logistics now consumes some 26% of GDP. Yet progress on building much-needed new ports, roads and railways is painfully slow, not least due to the resistance of local communities to new projects where they feel the benefits to them are outweighed by the costs.

India, too, has finally managed to push through a national sales tax. But the bigger political battle facing Prime Minister Narendra Modi will be building a federal transport system suited to the national logistics strategies the tax reform will enable.

In China, of course, democracy and judicial process are not blocks to new infrastructure construction. The last two decades have seen unprecedented investment in new railways, roads and ports. Local communities have often been stripped of their rights in the process.

Well-planned infrastructure investment can be a boon to a country’s businesses and economic growth, but politics decides who pays the bill and who cashes the cheque.

Measuring logistics performance

For those looking to invest overseas, the World Bank helpfully publishes a Logistics Performance Index which incorporates infrastructure quality in its readings. Its authors call the Index ‘an interactive benchmarking tool created to help countries identify the challenges and opportunities they face in their performance on trade logistics’.

Last year Germany topped the rankings, Britain was in 8th and the US was in 10th place. Asia’s two business-friendly city-states – Singapore and Hong Kong – also made a top ten which was otherwise dominated by EU countries. Out of 160 countries, China ranked 27th, Brazil 55th and Indonesia 63rd, behind even landlocked Rwanda.

The 2016 Index was striking because, for the first time since 2007, the world’s least developed economies saw logistics performance slow. And while emerging economies continued to improve their performance, the gap between rich and poor countries widened.

The World Bank said infrastructure continued to play a major role in assuring basic connectivity and access to gateways for most developing countries. Last year across all country income groups, Index survey respondents reported infrastructure productivity gains but the World Bank found that countries in the bottom quintile of LPI scores were improving infrastructure at a much slower pace than those at the top of the scale. OECD countries were, unsurprisingly, the top performers on infrastructure.

Michael King, Contributing Editor, FORWARDER magazine

2017-04-13T14:53:50+00:00April 13th, 2017|Categories: Digest|
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