Analyst Insight: Forecasts indicate slower growth in global trade in 2020. Despite this trend, there are opportunities for shippers and providers of logistics and transportation services, especially in emerging countries such as Vietnam, India and the Philippines. Taken together, emerging markets are expected to grow at a higher rate than mature markets in 2020.
Global trade will remain weak in 2020, according to several international organizations. The International Monetary Fund (IMF) expects a 3.4% increase in trade, while the World Trade Organization (WTO) forecasts a 2.7% increase, and the Organization for Economic Cooperation and Development (OECD) anticipates 2.9% growth. All cite a slowdown in manufacturing, uncertainties over Brexit, and the ongoing trade war between the U.S. and China as among the reasons for the expected slower growth.
Despite the slowdown, emerging markets are expected to grow at a higher rate than mature markets. According to Moody’s Investors Service, GDP growth in emerging markets will average above 4.5%, slower growth rate than in years past, but still well above the expected 1.5% GDP growth rate for advanced economies.
On average, emerging markets have younger demographics than advanced economies. For example, the average age in emerging markets such as Vietnam, India and the Philippines is 30.9, 27.1 and 24.4 respectively, versus 40.1, 45.9 and 37.7 in the United Kingdom, Germany and U.S.
Demographics are important to consider when looking for opportunities, because of the younger generation’s embrace of technology and e-commerce. As e-commerce grows, the need for infrastructure improvements in airports, ports, warehouses and domestic transportation networks will be strong in emerging countries. We’ve seen significant investment in India from Amazon and Alibaba, as each builds out its online marketplace and payment system in that country. In Vietnam, the government is promoting a system to manage the flow of inbound and outbound e-commerce goods. Meanwhile, the Philippines hopes to transform its economy with an $180-billion investment in modernizing infrastructure. The plan includes six airports, nine railways, three bus rapid transit projects, 32 roads and bridges, and four seaports. The goal is to lower the cost of production, improve rural incomes, encourage countryside investments, make the movement of goods and people more efficient, and create more jobs.
E-commerce forecasts for each of those countries is expected to mirror global cross-border estimates of double-digit growth for 2020. However, there are always risks, particularly within emerging markets, including volatile politics, economies and currencies. The ability of shippers and logistics and transportation providers to act in such an uncertain environment will depend on their financial health, willingness to partner with local providers, and ability to provide visibility into shipments from door to door. The reward for those businesses willing to embrace risk could be stronger balance sheets in years to come, as the global environment continues to shift focus away from traditional trade lanes such as the transpacific and transatlantic.
Outlook: Despite the decline in global trade, opportunities do exist, but only for businesses willing to take a risk. Emerging markets are volatile and often lack the proper infrastructure. In addition, this group of countries varies in terms of growth prospects, so deciding which ones to invest in is important. However, to achieve financial success in such countries, patience is required. Companies need to be reminded that financial success does not happen quickly.