In a volatile world, it seems like crisis is the new normal, Monika Schaller, EVP Group Communications, Sustainability & Brand at DHL told the audience at DHL’s Innovation Center in Dubai, highlighting geopolitical tensions, the aftermath of the pandemic and the rise of nationalism and protectionism.
Now in its 11th year, the DHL Global Connectedness Index, produced in partnership with New York University’s Stern School of Business, measures and analyses international flows of trade, capital, information and people to provide answers of the state of globalisation.
Schaller said, “The index provides a comprehensive and very objective view on the state of globalisation and it helps to steer business decisions and communications. It is separating beliefs from facts.”
After her introduction, Schaller welcomed John Pearson, CEO of DHL Express to the stage, who praised Dubai as a business-friendly location where the administration is pushing innovation and globalisation.
He said, “Quite frankly, if every government saw the benefits of connectedness and were aware of the risks of dependency then this whole thing would be so much further on than it is now.”
Pearson said we need to recognise that we are in unusual times after a great event whether it be the pandemic or Russia’s invasion of Ukraine, which creates uncertainty, opinions and a time when you should be talking about facts.
Everyone has a different opinion, said Pearson, showing newspaper headlines and statements from senior figures, some saying globalisation is over and others saying it is either holding up, just getting started or evolving. Data does not have an opinion, which is what makes it so good, explained Pearson.
Agility is key
In business, being flexible and agile are key, and after his introduction, Pearson told the audience that in the first three months of the pandemic, DHL Express had received more network change requests than in the previous ten years. At the start of the pandemic, it was PPE going into China during February and March 2020 and then PPE going the other way for about the next 18 months.
“You can imagine how our flows were changing. Then it was B2C going through the roof and B2B coming back so we were taking more aircraft and we were making sure that our aircraft were in the right place because without uplift, there is no transit time then there is no quality, without quality there is no growth,” said Pearson.
With at least 70% of shipments using commercial flights for part of their journey, the lack of passenger flights was a challenge so Pearson is very proud of the company’s performance. DHL Express expanded its fleet from 220 aircraft to 300, adding small-, medium- and widebody aircraft, which has since been cut to around 280 due to falling air cargo demand.
Working with partners is key, DHL Express worked closely with DHL Global Forwarding to ensure both of them could keep operating in difficult times and serve their customers.
Asia is key for DHL Express, where it has almost 60% of the market share for both revenue and volumes. Most tails and aircraft assets DHL Express needed to have in the right place were in Asia and the company had to suspend pick-ups in China for one day because it had too much sitting on the ground and weight limits had to be put in place so that aircraft had time to be placed where they were needed.
Pearson said 90% of DHL Express’ greenhouse gas emissions are from aviation. It has a number of measures including renewing its aircraft fleet with more efficient models, optimising fuel usage by looking at weight and balance and only taxiing using one engine, investing in sustainable aviation fuel (SAF), going electric on the ground and committing to 12 Alice fully electric cargo aircraft, which can fly loads of about a tonne distances of up to four hours.
DHL Express has committed to 800 million litres of SAF and by the end of this year, 2% of its fuel will be from sustainable sources. Availability is increasing and DHL Express has commercialised it with a product for customers called GoGreen Plus. The intention is for 30% of aviation fuel to be sustainable by 2030. Pearson told the audience that Deutsche Post DHL Group has bought 15% of all SAF on the market.
Staying connected
For all the talk about the end of globalisation, Pearson compared it to the Internet as something which will not go away. Looking at regionalisation and nearshoring, DHL Express, an international company, sees trade flows stretching over longer distances though Pearson admits there are adjustments, giving examples that companies may choose to have a factory in another country in addition to China.
“I think you are going to see changes, refinements and tweaks and things happening over time, people are thinking about it a lot because we have had a great world event but the facts and the data suggests that trade is still travelling a further distance,” Pearson said.
The volume of global trade was 10% above pre-pandemic levels by mid-2022 showing its resilience and how trade and business reinflates itself, said Pearson. Having spoken to regional CEOs, Pearson was able to say that business in Asia is getting stronger week-on-week showing that it is recovering.
Is it in reverse?
To answer the question of whether globalisation has gone into reverse, Professor Steven Altman, the lead author of the study said the three questions to consider are whether the growth of global flows has gone into reverse, has it given way to regionalisation and are geopolitical tensions fracturing the world into rival blocs.
As the only globalisation index measuring the size and geography of international flows, it can report that up to the pandemic, the long-term trend was up with a few dips following the 2008 global financial crisis. The pandemic caused a modest decline followed by a strong rebound and data suggests that 2022 will register another strong year despite the war in Ukraine and global economic challenges.
“Not only did the growth of global flows not go into reverse, global flows have actually grown faster than domestic activity, leaving countries more connected than they were before the Covid-19 pandemic,” Altman said.
Explaining how the report came to its conclusion, Altman said that compared to December 2019, merchandise trade collapsed in early- to mid-2020, it surged again, exceeding pre-pandemic levels by 10% by mid-2022 and though the annual growth in trade of good and services has fallen, at 5.4% in 2022, it was above the pre-pandemic average of 3.3%. The IMF predicts it will grow at 2.4% in 2023 and 3.4% in 2024.
Foreign direct investment also collapsed in 2020 but was back above pre-pandemic levels in 2021. International Internet traffic surged during the pandemic and has continued to grow at double-digit rates in 2021 and 2022. International travel is still below pre-pandemic levels but showing good signs that it is recovering.
So, in answer to the question has globalisation gone into reverse, the answer is no.
To answer the question of whether globalisation is giving way to regionalisation, measuring the average distance over which the international trade of goods has taken place, regionalisation would bring the distance down but this has not happened.
Altman said, “The general trend has been for trade to take place over longer distances. Over the past two decades, long distance trade between regions has tended to grow faster than short distance trade within regions and contrary to expectations that the supply disruptions during the pandemic would force us to rely on good from nearby, the average distance increased again in 2020 and 2021 all the way to the extent that international trade took place over the longest average distance last year that we have seen in at least the last 50 years.”
The reason was the resilience of production in Asia, Altman explained, causing more trade in far away regions. Data is not available for the whole world but Altman was able to highlight some major economies suggested that there was not a major shift to regional trade, citing Germany and Japan trading over longer distances in 2022 than 2021 and the US saw a partial reverse of its pandemic era shift towards longer distances.
At the moment, globalisation is not giving way to regionalisation though it is an open question as businesses are at least talking about nearshoring or implementing strategies. In April 2020, more than 80% surveyed said they were, which fell to 23% in April 2021 and rose again to over 50% in April 2022 following the start of the war in Ukraine.
Interest is high and governments are supportive of regionalisation strategies and Altman admitted there is a business case for it saying that reconfiguring supply chains can take several years.
The counterargument is that trade is already highly regionalised with more than half happening inside major regions. Many companies looking at nearshoring employed other strategies such as dual sourcing, digitisation or adjusting inventory policies. Falling shipping costs are making long-distance trade cheaper again and cost pressures are making it more attractive to look near and far away for suppliers.
So, is globalisation giving way to regionalisation? Not at the moment but it is something to keep an eye on.
A modest increase in regionalisation would not surprise Altman but he is sceptical that there will be a major shift.
To answer the question of whether geopolitical tensions are splitting the world into rival blocs, Altman presented what he believes is the first analysis of the flows between China, the US and countries who are allied with them. US imports into China and Chinese imports to the US have both declined so they are decoupling in the area of trade but there are more goods flowing from China to the US than between any other country and the dollar value of US trade hit a new record in 2022.
Looking at the allies, there is no evidence that the US’s allies are cutting trade with China and its allies. Imports from the US and its allies to China and its allies have continued the long-term decline but there has been no acceleration suggesting US-China tensions have had no impact. Going by all the other flows, it also suggests that US-China tensions are not having an impact.
In answer to the question of whether geopolitical tensions are fracturing the economy into rival blocs, there is evidence of US-China decoupling but the overall answer is another no.
Altman said, “Globalisation clearly has not gone into reverse, globalisation’s actually proved quite resilient in the face of recent shocks.”
There are still threats and untapped opportunities, said Altman highlighting protectionism, foreign investment restrictions, different regulations for data flows and geopolitical threats to international institutions as threats. As for opportunities, only 20% of goods and services are exported, foreign direct investment represents just 6% of the world’s fixed investments last year, 7% of voice calls are international and less than 4% of people live outside the country of their birth.
There are huge benefits to globalisation, with Altman saying the wealthiest countries are the most connected and the poorest are the least connected. The policy threats means efforts to improve globalisation need to be redoubled so it benefits everyone, saying, “Because global flows have proved so resilient, what many policy makers are starting to call re-globalisation doesn’t have to mean rebuilding from the ground up and the strength of global flows creates strong incentives for companies and countries to stay engaged.”
This article was first published in the April issue of Air Logistics International, click here to read the digital edition and click here to subscribe.