The international air express industry will profit from higher-value shipments once the worldeconomy and international trade recover, a new study by Deutsche Post DHL and the London School of
Economics (LSE) revealed today.The study found that when international trade rebounds in the medium term, it will likely seea rise in the proportion of trade, particularly in value terms, accounted for by air express. Theair express industry will continue to grow as a proportion to the rebound in the volume of tradegrowth.
The study also singled out three major areas of potential expansion in the air expressindustry – rising demand for individualised health care, demand for documents transfer ininternational services industry and spare parts for equipment as the economic climate calls formore upgrades and repairs than replacements.
“Air Express remains an important and fast growing sector. The value of international tradehas increased by 16-fold in the last half century, largely dominated by high value, time criticalgoods which require just-in-time deliveries. In recent years, air shipments have grown more thantwice the rate of ocean freight over the past 30 years,” said Deutsche Post DHL CEO Frank Appel.
“Deutsche Post DHL’s early entry into emerging markets in Asia Pacific, such as China, India,will help us to stay prepared for the upturn. Whether it is time critical deliveries via air orproviding support in our supply chain solutions, the logistics industry will become critical as anintegrator in generating post crisis economic growth,” he added.
The study “International trade, Express Logistics and Globalization: Part and Parcel of theSolution to Current Economic Challenges” revealed that the medium term outlook for global traderemains strong even as trade remains at best stagnant in the short run due to low availability ofcredit. However, when credit becomes freely available and trade rebounds, the study suggests thatthe return of trade will not benefit all countries equally.
The study singled out the cost of sea transport and the availability of review procedures astwo key prominent factors that influence an economy’s appeal to attract international trade. Thefindings were based on an analysis of the cost and quality of logistics in Brazil, Russia, Indiaand China (BRIC) which account for 40% of the world’s population and 15% of the global economy andserve as exemplars to other emerging economies.
The cost of air-borne freight is relatively constant for the BRIC countries, compared to thecost of sea borne transport which varies much more dramatically around the world. Countries thatprovide low cost shipping logistics are more attractive to firms producing generally low valueproducts that are sent by ship. India for example, has shipping costs that are more than 50% higherthan those of China, while Russian shipping costs are over four times as high. Should India be ableto reduce the cost of shipping to match Chinese levels, its trade would increase by 10% whileBrazil and Russia’s trade would increase by 30% and by 50% respectively if they were to matchChina’s shipping costs.
The study shows that countries wanting to attract firms that use air express shipments needto look not so much at improving costs, but ensuring reliability and timeliness. In particular,countries where traders can ask for low cost, transparent review of any decisions made on theground will have a higher share of world trade. The report also notes that effective reviewprocedures are notably absent in the emerging economies, posing a challenge to shippers who intendto import or export time sensitive goods, such as high value “must have” electronics. The analysishas inferred that if these countries were to ensure the discipline and current availability of suchreviews, China and India could increase trade by 20%, while Brazil and Russia would increase theirsby 30% during post crisis recovery.
“Transport and logistics costs in particular outweigh tariffs as the greatest barriers totrade by a factor of 9:1. The study shows that countries which seek to be at the forefront of thenext wave of globalization need to benchmark themselves against global best practices. Exportreliant emerging economies can improve trade conditions to strengthen their international tradelevels when the global economy rebounds,” Appel explained.
Given the central role of logistics in International trade, the study postulates thatlogistics companies play a critical role in supporting economic recovery. As the industry isasset-heavy – with significant investments in planes, ships and vehicles – costs of logisticsfluctuate significantly with demand. Accordingly, during the economic downturn, logistics costshave come down substantially, helping to alleviate the full impact of the economic downturn forbusinesses involved in international trade.
Similarly, logistics companies play an important role in enhancing the attractiveness of Asiaas a place to do business. With the rapid growth of Asian purchasing power, logistics companieshave remain entrenched in the region, recognizing its strategic role. As logistics services arewidely available, this in turn will help countries in the region cope with the economic downturnand be well placed for the upturn.
