Global Trade – Where is it Heading?
July 9, 2020
Global Trade Decline
The outlook for global trade looks grim as the World Trade Organization (WTO) announced an 18.5% decline in trade during the second quarter. For the rest of the year, the WTO has forecasted a 13% to 32% decline depending on COVID-19 recovery efforts.
To add to the grimness, according to the Atlantic Council's Scowcroft Center for Strategy and Security’s resident senior fellow, Robert Manning, COVID-19 has accelerated protectionist trends which were already playing out prior to the pandemic such as the U.S. – China trade war and U.S. – EU trade tensions.
For example, according to Global Trade Alert, a Swiss monitoring group, countries around the world imposed 222 export curbs on medical supplies, medicines and in some cases even food. Some of the curbs were temporary and are now being lifted but it highlights the vulnerability of the global supply chain.
This is evident in ocean and international air freight volumes as well. According to Seabury Consulting, containerized trade is expected to decline by 14% this year, the largest year-on-year decline on record. Recovery is not expected until 2022 when volumes are forecasted to return to 2019 levels. After that, containerized volumes are estimated to grow by 3% annually.
Meanwhile, year-to-date through May, air cargo volumes in terms of cargo tonne-kilometers are down over 20% based on IATA data. Air cargo has struggled prior to the COVID-19 pandemic as well. Recovery is not likely until second half of 2021 at best but even that is questionable.
Impact on the Small Parcel Market
So, what does this mean for the small-parcel market? Volumes continue to grow through the pandemic and in fact, as we have observed, carriers have struggled with the increase in volumes. We expect market shifts favoring e-commerce will continue to benefit small parcel providers as well as growing demands for next day/same day delivery.
As global trade falters, a rethink on regionalization is on the rise. Conclusive data supporting this trend is lacking but according to an April survey from Thomas, 64% of companies across the manufacturing and industrial sectors "are likely to bring manufacturing production and sourcing back to North America."
Nearshoring is also being considered particularly with the July 1 implementation of the USMCA. Moving production from Asian countries to Mexico and Canada brings suppliers closer to market for U.S. businesses, and it cuts out the need for ocean or airfreight, thus potentially lowering transportation costs.
Even though global trade appears grim, it will not completely disappear. Instead, businesses will adjust their strategies to mitigate future risks. Small parcel will likely play a larger role in transportation strategies particularly as not only B2C e-commerce grows but also B2B.
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