Change

Our second blog from the recent UKWA conference looks at the trends facing the logistics industry. The session covering this had three speakers – Dr Walter Boettcher from Colliers International, Brandon Wang from Dimerco and Pierre Liguori from Tokema International – and explored the key economic drivers and expectations in the trade lanes of a post-Brexit world. This blog covers the contributions of Liguori and Boettcher. A quote from Danish physicist Niels Bohr under-pined the discussion: “Prediction is very difficult especially about the future!’.

Pierre Liguori spoke with authority about the long-term trends he foresees under the umbrella term ‘Global Trade Opportunities’. He believes that exports from the UK will continue to grow provided it responds nimbly to increasing globalisation coupled with more complex supply chains. He supported this with the following statements:

  • 30% of the World’s GDP will come from Asia by 2020.
  • 69% of the World’s GDP will come from developing countries by 2020.
  • Africa will become the ‘new’ Asia in terms of global imports and exports.

Despite the Brexit vote, Liguori was reassured that UK products remain a major source of supply for Europe (and vice-versa) with 50% of the UK’s exports going to Europe (we will discuss the implications of Brexit for warehousing and distribution in a later blog ). However, Brexit represents a time of heightened uncertainty and the possibility must be considered that current export demands by Europe could be seriously threatened as new trade agreements are put in place with Europe – their closeness to current arrangements may vary industry by industry.

However, following the line of the Brexiters (or, at least, those focussed on the trade question), the UK currently does not have free trade agreements with China, India, Australia and Canada. Coming out of Europe may put the UK in a stronger position in terms of global trade opportunities and negotiating new deals – simpler, quicker and less restrictive - with some of these countries.

Pierre predicted that the following key trends within the logistics world:

  • More regional hubs but with global connectivity.
  • New trade lanes in Asia with intra Asia trade lanes forecasted to cover 25% of world trade by 2020.
  • More trade relationships between North and South America.
  • Structural changes and more complexity to logistics flows.

Reebok was given as an example of a company being unafraid of changing their manufacturing and distribution locations in order to take advantage of lower taxes, cheaper land and a cheaper workforce. In recent years Reebok’s production has gone from Korea to Thailand to Indonesia and finally, for the moment, to Vietnam. Continuing digitalization and the growth of robotics and automation specifically in warehousing.

The clear message from Pierre was that UK companies require a ‘Go to Market’ strategy and to look further afield internationally in order to gain new customers. In turn, the warehousing and distribution sector needs to prepare supply chain solutions that address this.

Dr Walter Boettcher, Director of Research and Forecasting at Colliers International, followed Liguori onto the rostrum and provided us with an economic outlook.

Firstly, we have the very imminent US Presidential Elections to deal with. It is an understatement to conclude that Donald Trump’s trade ‘policies’ concern economists! Trump has stated that he would renegotiate NAFTA (the North American Free Trade Agreement between the US, Canada and Mexico) and would impose a 35% tariff on imports from Mexico. He has even gone so far as to say he would rip up this trade agreement entirely. Furthermore, Trump has stated he would also import a 45% tariff on Chinese imports into the US. It is hard to see him not adding Europe to his list! Of course, all of this is electioneering word-smithing - we wait to see!

In brief, other points made by Walter included:

  • The likelihood of more favourable tax policies to support household spending.
  • Weak sterling post Brexit is [the only thing] behind the continued good business/economic indicators.
  • With an increasingly ageing population there is a forecasted growth in all aspects of healthcare.
  • The upcoming Italian referendum contains risk for Europe. The referendum is not about EU membership but about constitutional reform in a country that has struggled to come out of recession, has high levels of unemployment and undercapitalised banks. Like David Cameron’s ‘win or bust’ strategy, this is as a very risky move by the Italian PM. Defeat could throw Italy into both financial and economic disarray (plus ca change!) but with serious ramifications for the rest of Europe.
  • There is a significant dependence in the UK on trade across Europe, with the automotive industry a particularly good example and the warehouse and distribution sector that underpins it a more general example. The post Brexit poker game with our European trading partners, particularly France and Germany, to be triggered by Article 50 may have the other side on the defensive re their trade with the UK, or they may be prepared to harm it in the wider defence of the European project. It will depend on the emotions and ambitions of the lead players who may not include Merkel and almost certainly not Hollande (though, arguably, a Sarkozy or even a Le Pen may be more pro trade/anti- Euro centralism).
  • Theresa May appears to be pressing ahead with what George Osborne started with the ‘Northern Powerhouse’, an initiative that will help fill (and build) warehouses in the north.

Walter concluded by commenting that despite the doom and gloom post Brexit, the fundamentals still look strong for the UK and this can only be a good for growth in UK logistics, distribution and warehousing markets .