According to a recent analysis by DHL Express and the NYU Stern School of Business, predictions that global trade would slow down as supply networks repositioned through nearshoring and reshoring of manufacturing operations are not coming true.
Despite the challenges posed by Covid and the global economic recession, trade is predicted to expand a little bit quicker in 2022 and 2023 than it did in the previous decade.
According to John Pearson, CEO of DHL Express, “globalization did not lead to regionalization.” “We have seen a finessing of some supply chains to the emerging markets. Vietnam is the clear winner.”
The analysis observed that the cross-border trucking issues and lockdowns in China did have an impact on manufacturing, but the predictions that businesses would move their production near-shore or bring them back to local areas as a result of the “zero Covid” efforts in China and associated supply chain issues did not materialize.
Due to the speed and scale of its rise, Vietnam improved its position in international trade.
“This combination is attractive for trade partners,” the DHL Initiative on Globalization’s director and senior research scholar Steve Altman of NYU Stern. “It means the country has the scale to keep up with its speed of growth.”
Philippines and India were the other newly developing trade-expanding regions.
In their rush to entice more manufacturing partnerships and trade, emerging nations are importing more raw materials and implementing more technology.
“These shifts in trade patterns we see reflect more on the quality of the goods rather than the quantity in the emerging market countries,” according to Pearson, these nations’ rapid adoption of innovation and technology has helped to raise their position.
In a separate interview with “Squawk Box Europe” on Thursday, Pearson stated that even a few years ago it wasn’t clear that the manufacturing shifts within emerging markets would take place under the concept known as “China + 1, + 2, + 3,” but it is definitely occurring now, “in a gradual but consistent way.”
Companies have been obliged to modify their trade operations as a result of inflation and the slowdown in the economy (the domestic GDP has been negative for two consecutive quarters).
“Trade is tied to GDP growth,” Altman said. “In a period of high inflation, what companies need to be doing is to be more efficient and manufacture at lower costs. Companies need to look for the best access around the world to achieve that.”
But Altman claimed that this may promote trade growth. “In the short-term, you have macro-economic trends, but that does not mean a broad retreat from trade,” he said.
As the U.S.’s busiest shipping season gets underway, the short-term prognosis is still unclear, according to Pearson.
Fedex issued an earnings warning for its fiscal first quarter on Thursday following the market’s closing, which was 33% below its earlier expectation. The carrier cited operating expenses and weaker worldwide demand, and it withdrew its full-year forecast.
“While no one knows what kind of peak season we will have, we have seen good growth in the United States. It depends on how the holiday shopping season will go and if people stop browsing and start buying,” Pearson said.
“Despite, the somewhat cloudy outlook we’re in, it [trade] continues to be very resilient,” he stated this previously on Thursday during an interview with Squawk Box Europe.