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The pandemic’s effect on global freight movement has been a large contributing factor to the decline of up to 9.2% in global trade over the last year.
On the supply-side, traders have faced rising costs as a direct result of operational constraints imposed on supply chains from uncertain and inconsistent activity. For some major, historically established shipping routes, such as those linking Europe with production centers across Asia, there has been an unprecedented spike in container freight rates. Costs have recently jumped by as much as 600% (see figure 1) as short-term stocks of containers have been unable to respond to sporadic pick-ups in demand for cargo movement after a months’-long slowdown.
As for demand, the lockdowns and travel restrictions have led to a comprehensive worsening of global key economic indicators. The IMF currently estimates that global GDP contracted by 3.5% last year, while the United Nations’ International Labor Organization, the ILO, believes that by October incomes were 10% lower worldwide than in January. The depression from which the global economy must pull itself out from will be particularly testing for the manufacturing of commercial and luxury goods, which comprise a crucial component of the trade profile of many developing nations.
[Figure 1] Estimated real GDP growth across selected world regions. Source: International Monetary Fund.
[Figure 2] Weekly price of container freight over 6-month period. Source: Freightos Baltic Index.
In the face of these demand and supply-side shocks, the freight industry has experienced five main trends over the past 12 months. Increased border controls and cargo inspections, greater trade volatility and the reallocation of airline fleet to serve cargo have all been a feature of doing business. But the two trends with the longest lasting implications are the reconfiguration of trade routes as countries look to build resilience in the face of potential shocks, and the accelerated adoption of digital and technical solutions to give consumers more choice, with fewer clicks at a lower cost.
Digital solutions are a crucial element in helping economies recover from the demand and supply side shocks caused by COVID-19, for three key reasons
Swift changes in demand and supply schedules for goods have required the development of instant solutions for traders. For example, DP World has begun offering benefits such as extra days storage and advanced cargo information to Dubai-based traders as part of the World Logistics Passport program. Such benefits allow traders and freight forwarders to adapt and act with more flexibility in a difficult trade environment.
The disruptive global trade environment and rising trade costs has led customers to demand a more seamless and end-to-end trade service from logistics entities. Companies are now rushing to offer solutions that go from door to door for an enhanced customer experience.
The increase in customs and border checks has required trade entities to revitalize public-private cooperation to enable smoother cross border trade. This has required an unprecedented demand for private sector knowledge transfer and capability building to support governments in adapting to new trade challenges.
However digital solutions are not a panacea to trade and must be supported by broader policy action
The need for government alignment has been heightened by the pandemic, and the atmosphere of distrust which has followed regarding the integrity of merchandise entering a country. Add to this the preexisting trend towards repatriation of global value chains – only due to be accelerated by the pandemic – and it becomes clear that the power of digital solutions can emerge only within the appropriate policy framework.
Here, the World Logistics Passport offers an answer for business and government alike.
The World Logistics Passport (WLP) is the first global multi-modal freight loyalty program which aims to reimagine trade by promoting the development of South-South corridors between Asia, Africa, and Latin America. It provides governments with greater incentives to develop their digital platforms in order to boost trade, acting as a catalyzer of trade by reducing costs and improving efficiencies throughout the value chain.
The potential for digital solutions to facilitate global trade ultimately rests on the will and resources of governments to harmonize trade practices and achieve higher degrees of mutual recognition. Policy frameworks such as the WLP of a solution by helping countries to recover from the economic fallout from COVID. Looking ahead, the imperative for all nations is to think differently about how goods and services can move around the world and, in turn, improve the resilience of global trade.
As a trade catalyzer, the WLP is supported by the appropriate digital solutions to make it happen. To take into account different levels of capabilities, each participating Hub is able to define its own set of trade incentives that apply in the Hub and develop them over time.
Partnerships are imperative to succeed in this era
For global trade to grow, it is imperative that relevant stakeholders in different geographies are aligned on objectives. Even with the right digital infrastructure and policy frameworks, partnerships and agreements will help join the dots to deliver successful and inclusive outcomes.
The WLP, for example, is anchored in global partnerships with governments, local logistics service providers and a multitude of other stakeholders. These partnerships unlock various financial and non-financial benefits that ultimately helps increase trade for countries, ensuring faster and less costly logistics journeys.
As we emerge into a new business environment that has been completely transformed, the coming together of trading hubs through a series of initiatives and enabled by digital services will bring sustainable returns to communities and secure a better future for everyone.