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Jarmo Reunanen: Logistics 5 forces of change 2/5 - Changes in Global Trade

Number of transport operations between China and Europe (Source: Reuters)


Jarmo ReunanenForecasts of the logistics market generally list the 5 key forces of change that will shape our future. Identifying these change drivers will help companies target short and long-term investments and develop e-business. These five key forces are digitalisation, strong growth in global trade, leveraging learning software, in-market restructuring, and increased automation.

This blog series addresses these forces in more detail. I dealt with digitalisation in the first part of the series. My second topic is the changes in global trade and the challenges they bring.


Increase of China’s influence

The Chinese dominance we see in e-commerce has not happened by chance. China is determined to build a very ambitious Belt and Road Initiative (BRI) of the 21st century, which may already be the largest infrastructure project in the history of mankind, covering nearly 70 countries, 65% of humanity and 40% of the world's GDP. Its impact on the global economy is enormous. Trading costs are reduced, and investment in logistics and general infrastructure (especially at BRI hubs) is increasing. Reducing indirect costs will open the door to new business models and service concepts that were previously unprofitable. The world is settling into the new normal of low cost and global trading.

This opens up new opportunities for the consumer. Reduced logistics costs allow access to an unprecedented range of products in a cost-effective and reasonable delivery time. A direct link to the productive power of emerging economies shapes supply and brings new substitute products to trade. In addition to profitability pressures, local trade also has to handle threats about which there is insufficient market experience to support decision-making.


COMPETITORS FOR LOCAL TRADE

However, global logistics-driven e-commerce does not eat from the local players. The consumer buying experience is influenced by powerful factors that can best be realized through local multichannel commerce. I picked two of these, which are product fit and delivery time options.

The largest share of Chinese shipments to Europe is by sea - totaling 54 million tonnes in 2016, compared to 1.8 million tonnes for air and rail. Despite the BRI, no change is expected in this relationship. In spite of the developing logistics routes, sea transport means relatively long delivery times for products whose suitability to the consumer could not be ascertained in advance.

Local stores can improve the shopping experience by bringing products close to the consumer, in stores and (for high volume products) local central warehouses. 

Publishing in-store products to online sales increases the product range without having to increase inventory values ​​to unprofitable. Collecting online ordered items in stores speeds delivery and is cost effective. It also allows you to get acquainted with the same products in a shop environment to ensure suitability.

Local retailers must develop their practices based on the consumer shopping experience. Cost-effectiveness is a prerequisite for strengthening multi-channel commerce. Consumers that increasingly attach importance to the management of environmental pressures are supporting local actors rather than global ones.



7.10.2019

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