Wildlife crime: a $23 billion trade that’s destroying our planet

Between 2007 and 2013, rhino poaching in South Africa increased by 7,700%. Rhinos, which are poached for their horn, aren’t the only victims of this illicit trade, which is driving many species of wild animals and plants to extinction: elephants are poached for ivory, tigers and leopards for their skin, pangolins for meat and scales, and iguanas are caught for the pet trade. Rare timber is targeted for hardwood furniture.

wildlifecrimeWith a value of between $7 billion and $23 billion each year, illegal wildlife trafficking is the fourth most lucrative global crime after drugs, humans and arms. Trophy hunting is estimated to create around $200 million in annual revenue. Only 3% of the fees paid for the hunts reach local communities.

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Image: African Wildlife Foundation

In 2015, the United Nations General Assembly unanimously adopted a resolution for tackling illicit trafficking in wildlife. The Sustainable Development Goals specific targets to combat poaching and trafficking of protected species. That’s quite some progress, but more action is urgently needed, because more than 7,000 species, in 120 countries, are at risk.

Fighting this type of corruption requires civil servants, including park rangers, who are properly paid, trained and equipped. Along the entire supply chain, awareness needs to be raised and measures must be increased.

Commitment and collaboration to break the chain

Transportation and logistics is not only the backbone of a modern economy but also a key enabler for trafficking wild animals and wildlife products. Therefore, the transportation and logistics sector plays a critical role in identifying and eliminating risks along the supply chain. In light of the surge in wildlife crime, the industry has been taking a range of actions to break the chain between supply and demand.

At the end of January 2015, TRAFFIC and the World Customs Organization (WCO), with the support of the United States Agency for International Development (USAID) and the Wildlife Trafficking Response, Assessment and Priority Setting (TRAPS) Project, convened a two-day consultative workshop. Delegates from shipping and logistics companies, airlines and courier and transport associations were seeking solutions to deter wildlife smuggling activities.

In March that same year, representatives from logistics and transportation companies operating in China made a public declaration pledging their zero tolerance towards illegal wildlife trade. The 17 companies, which include EMS, DHL, FedEx and SF Express, account for 95% of the Chinese courier market.

The same month, the Declaration of the United for Wildlife International Taskforce on the Transportation of Illegal Wildlife Products, which outlines 11 commitments to help bring an end to the illegal trade in wildlife, was signed by some 40 corporations, agencies and organizations, including Maersk Line, Kenya Airways, IATA and the World Customs Organization (WCO).

Many airlines have banned hunting trophies: Air Canada, Air France, British Airways, Brussels Airlines, Emirates Airline, Etihad Airways, Iberia, KLM, Lufthansa, Qantas, Qatar Airways, Singapore Airlines and Virgin Atlantic Airways. Following the killing of Cecil the lion in early July 2015, Delta Airlines banned all lion, leopard, elephant, rhinoceros and buffalo trophies in the cargo holds; United Airlines and American Airlines later followed suit. US embargos are important. The person who killed Cecil, Walter Palmer, is one the estimated 15,000 American tourists who visit Africa on hunting safaris each year. Although he had a permit and was not charged with any crime, Cecil was an illegal kill.

In June 2016, the International Air Transport Association (IATA) adopted a resolution on the illegal trade in wildlife at the 72nd IATA Annual General Meeting. IATA denounces illegal trade in wildlife and wildlife products, and calls upon the member airlines to consider the adoption of appropriate policies and procedures that discourage the illegal wildlife trade.

Modern technology can stop the crime at the root

Breaking the chain is important. However, it would be better to stop wildlife and forest crime at its root. Satellites, drones and internet live-streaming enable solutions which capture the crime taking place to inform law enforcement agencies and the general public in real time. Solutions like this could not only protect wildlife and forests, but also support important initiatives in many fields and areas, such as deforestation, illegal fishing and natural disasters.

The development has already begun: Global Forest Watch is providing data and high-resolution alerts. Witness, established in 1992 by Peter Gabriel with the help of Human Rights First and its founding executive director Michael Posner, trains and supports activists and citizens around the world to use video safely, ethically and effectively to expose human rights abuse and fight for human rights change.

Building new tools requires support from the private and public sector, international organizations and consumers. Until new high-tech solutions arrive, collaboration in fighting corruption and wildlife and forest crime along the supply chain needs to be tightened and strengthened.

This month, leaders and experts are in Johannesburg for the 17th meeting of the Conference of the Parties to CITES. The participating parties are discussing a dedicated resolution on prohibiting, preventing and countering corruption facilitation activities.

As Yury Fedotov, the executive director of the United Nations Office on Drugs and Crime, said: “We all share a responsibility to act where we can.” Hidden in fashion or furniture, as food or pets, the products of wildlife and forest crime find their way into our homes and lives, so we all have a responsibility to act.

This blog was originally posted on the World Economic Forum Agenda.

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From flying shuttles to rolling robots, automated supply chains are almost here

Emerging technologies prepare the ground for the autonomous world, including the unmanned supply chain with many benefits but also risks to be mitigated. The main challenge and responsibility for the leaders of today is to capture the benefits while finding meaningful activity for all of us.

ASCFrom Amazon’s delivery drones to self-driving cars, autonomous factory equipment to Elon Musk’s 760 mph vacuum tubes – automated vehicles are on the rise.

Even beyond the grounds of private companies, tests of automated transport have been successful. A truck platooning system, in which groups of two or three “smart trucks” travel closely behind one another communicating wirelessly, arrived in Rotterdam in April. The Ministry of Transport in Singapore seeks proposals to develop something similar.

Also in Singapore, Airbus is pursuing an autonomous air taxi project to deliver parcels to ships in the port. On the water, the cargo ships of the future are expected to be crewless and remote-controlled.

The so-called “last mile”, delivery to the doorsteps of businesses and consumers, is probably the most complex task in the supply chain – especially in busy urban environments full of cars, bicycles and children playing in the streets. Intelligent self-driving vehicles can transport up to 100 pounds. In Paris, two entrepreneurs are building a flying river shuttle that will bypass traffic by travelling above the Seine.

Raw materials can now be extracted in automated mines; they then reach the smart factory 4.0 and are transported from there by wireless truck or delivery drone to the automated distribution centres of retailers or the smart boxes of individual consumers.

The point? The autonomous end-to-end supply chain is almost complete.

Automatic benefit

Automation in the world of logistics will create enormous opportunities when it comes to making the flow of goods safer, more efficient and more environmentally friendly. Self-driving cars alone would reduce accidents by 70%, improve fuel efficiency by 20%, and save about 1.2 billion hours of driving time over a period of 10 years. Less congestion will make the flow of goods and people faster – and those countries with driver shortages, such as the United States, United Kingdom and Germany, will find relief.

The improvements do not come without challenges, however. One key concern is cyber risk. We need to ensure that autonomous units cannot be hacked. Also ethical questions need to be answered – how to decide whom a vehicle is supposed to save in case of an accident, for example. Policy-makers also need to consider the impact on jobs: where to start, where to slow down the autonomous economy to avoid unwanted consequences, starting with unemployment.

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The autonomous movement, which began in the early 1950s, is now in full swing. Of 1,433 consumers surveyed in the US, 70% think they will order the first drone-delivered package within the next five years. The majority of policy-makers (88%) expect autonomous vehicles to gradually become a reality within the next 10 years, based on a recent worldwide self-driving vehicle study by the World Economic Forum.

According to the same survey, 60% of policy-makers expect a ban on private cars in cities over the next 15 years. And this might not be limited to private vehicles: over time cities will further regulate goods deliveries, which are one of the main causes of daytime congestion. Therefore, not only transportation companies, but also shippers need to prepare for an autonomous future.

Capturing the full potential of the automated supply chain requires rethinking entire logistics systems. There will be an evolution from the fixed “collect in the evening and deliver during the morning” approach to a fluid system of continuous movement and supply. Platoons, drones, tunnels, tubes, rolling robots and automated warehouses make the constant flow possible.

But this requires flexibility and innovation on the operator level, as well as investments in technology and infrastructure. It requires close collaboration between not just manufacturers, retailers and developers, but policy-makers and the citizens themselves.

Image: REUTERS/Wolfgang Rattay

This blog was originally posted on the World Economic Forum Agenda.

Is this the key to successful global trade?

“Logistics performance – both in international trade and domestically – is central to the economic growth and competitiveness of countries, and the logistics sector is now recognized as one of the core pillars of economic development.”
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So reads a 2016 report by the World Bank titled Connecting to Compete 2016: Trade Logistics in the Global Economy. The report features the Logistics Performance Index, which ranks Germany as the world champion in logistics. The country scores even higher than it did the last time it topped the index, two years ago.

In today’s interconnected and interdependent global economy, where consumers and citizens benefit from the global flow of goods, we need to collectively ensure that all parts and pillars across the globe can carry the heavy loads coming through the supply chain.


Logistics Performance global rankings 2016


The path to prosperity

Logistics is the key enabler of the world’s supply chains, which bring resources, seeds, fertilizers, materials, parts, machinery and equipment to farms and factories, as well as goods to shops, supermarkets and households.

Without logistics, today’s global procurement, manufacturing and distribution would not exist. Logistics connect sellers and buyers across the globe and provide companies with access to domestic and international markets. Related services influence the cost of goods and determine the competitiveness of economies. Their integration in global trade and value chains adds value to the worldwide networks of procurement, production and distribution so important for job creation, national economic development and wealth.

In short, when logistics function as they should, they are the basis upon which economies are built.

In the top 30 of the Logistics Performance Index we find 22 OECD countries and 14 members of the European Union. China moved from 28 in 2014 to 27 in 2016. India, currently the world’s fastest-growing large economy, did not make its way into the top 30 this time but has jumped 19 places to rank at number 38.

Strong nations depend on and benefit from buying and selling in foreign countries. Competition is what drives them, collaboration is what helps a nation to capture its full potential.


Asia rising

Globalization, logistics and trade have had a significant impact on global wealth levels. In 2013, the Economist wrote that in 20 years nearly 1 billion people had been taken out of extreme poverty. In 2015, the World Bank announced that global poverty was likely to fall below 10% for the first time.

This reflected the entry of China, India and other developing countries into the global procurement, manufacturing and distribution system, as increasingly powerful players in the world economy. Still, many developing countries remain on the margins of world markets, requiring helping hands to improve their logistics capabilities.

Between 2007 and 2014 the gap between top and low performers was slowly shrinking – driven by the logistics sector’s continuous improvements in infrastructure and service quality, as well as customs clearance processes. In 2016, logistics performances converge at the top and the gap between high and low performers widens.


Landlocked logistics

How fast the picture can change. Take the Philippines: it ranked 44 in 2010 but has fallen to 71 in 2016. The drop is largely driven by two factors: transport-related infrastructure and the competence and quality of logistics services, including transport operators and customs brokers. The online publication Supply Chain Digital writes: “Stalwarts of the Philippines’ logistics industry have voiced concerns over a series of Bureau of Customs directives instigated in the past year.”

Logistically constrained countries – landlocked nations without direct access to the oceans and global waterways, for example – are regularly struggling with trade and transport facilitation and reforms. Beyond political will, the disadvantaged countries with weaker logistics (often today’s suppliers and definitely tomorrow’s potential customers) require and deserve attention and support from the international community.


Reliability over speed

In high-performing nations, slower global trade after the 2008 global financial crisis, as well as environmental concerns, create a pressured environment for the logistics industry. The sector – itself estimated to contribute 23% of total global greenhouse gas emissions – faces concerns over jobs, land use and urban planning. In the interests of economic inclusion and peace, all nations need to further advance trade and transportation facilitation, whether individually or collectively, while safeguarding the citizens against harmful activities.

According to the World Bank report, “supply chain reliability continues to be a major concern among traders and logistics providers”. And indeed, reliability is more important than speed. And critical for reliability is efficiency at the borders. The current global trend towards disintegration, such as Brexit or the erection of fences at the Hungarian border with Serbia and Croatia, are not helping.

In economies where infrastructure and skills are no longer the key concern, governments might need to invest more money and time in explaining to the citizens the benefits of trade and logistics.

This blog was originally posted on the World Economic Forum Agenda.

Innovation in Home Health and Medical Care Logistics

The world’s growing elderly population and the general interest of the world’s population in health and medical care represents a major new market for entrepreneurial transportation and logistics managers as policy makers look to expand home care solutions.

On 22 February 2013, I have published in the Journal of Commerce covering the same topic with the title Medical Logistics Offers Opportunities for 3PLs.

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Logistics companies have huge opportunities to benefit from home care, from the results of the rising age of the world’s population and the increasing needs and interest in the matter as a whole. The strain health treatment will place on public services in the years ahead will see both developed and developing countries increasingly turn to home care options as they seek ways of coping with accelerating demand for health and medical care.

Holistic approaches to home health and medical care with logistics services at their core will give governments and citizens a whole new and more convenient and cost effective way of managing demand for health and medical care in the future. Processes and services can be tailored to specific customer segments to make them as smart as possible through the use of technology.

Working together, transportation, technology, security companies and logistics businesses can partner with nurse networks, pharmacies and hospitals to provide viable methods of caring for the citizens. The opportunities for logistics companies to make themselves critical to the delivery and monitoring of such services are immense and already being developed.

Over 80 percent of the world’s elderly population will live in developing countries by 2050, according to a new report by UNFPA, the United Nations Population Fund, and HelpAge International.

Ageing in the Twenty-first Century: A Celebration and a Challenge found that the number of elderly persons is growing faster than any other age group. The report said the trend represented a huge challenge and would require completely new approaches to health care, retirement, living arrangements and intergenerational relations.

In 2000, for the first time in history, there were more people over 60 than children below the age of 5. By 2050, the elderly generation will be larger than the under-15 population. In just 10 years, the number of elderly persons will surpass 1 billion people—an increase of close to 200 million people over the decade. Today two out of three people aged 60 or over live in developing countries. By 2050, this will rise to nearly four in five.

“If not addressed promptly, the consequences of these issues are likely to take unprepared countries by surprise,” said the report. “In many developing countries with large populations of young people, for example, the challenge is that governments have not put policies and practices in place to support their current older populations or made enough preparations for 2050.”

However, the opportunity in the health and medical care sector goes far beyond the segment of the elderly and expands into the way we monitor the health conditions of the entire population. General health checks in adults for reducing morbidity and mortality from disease (Review) published by The Cochrane Collaboration states that “General health checks did not reduce morbidity or mortality, neither overall nor for cardiovascular or cancer causes, although the number of new diagnoses was increased. Important harmful outcomes, such as the number of follow-up diagnostic procedures or short term psychological effects, were often not studied or reported and many trials had methodological problems. With the large number of participants and deaths included, the long follow-up periods used, and considering that cardiovascular and cancer mortality were not reduced, general health checks are unlikely to be beneficial.”

What this report indicates is that comparison with the national or international average relative to the health care parameters, for example blood pressure, doesn’t mean anything to anyone and what matters most is the comparison with the health care tracking data of each individual against the own record.

Therefore, the market should not be segmented along age-brackets. We need to understand the needs in respect to health and medical care across the entire population and segment accordingly.

Home health and medical care solutions can be divided into three components – Monitoring and Examination, Vital Sign Check and Medical Treatment.

The ‘Monitoring and Examination’ process such as providing a sample for analysis would take in a number of stages with a logistics component such as delivery of test kits from agencies to the citizen and the return of the sample to the agency. Having obtained the sample analysis, this data would then need to be delivered to medical institutions and follow-up could involve the delivery of a suitable treatment to the individual.

Taking a ‘Vital Sign Check’ of a person could mean delivering medical equipment and software from manufacturers to individuals and managing the data received from home and its online delivery and analysis.

‘Medical Treatment’ services might incorporate diagnosis, treatment, medication and food delivery. This process could see diagnosis and some treatment by remote communication systems, with wholesalers or retailers requiring the delivery of drugs or food directly to individuals at home.

Although such treatments would involve a whole range of companies – from equipment and pharmaceutical suppliers to telecommunications and catering experts – transportation and logistics will be crucial to the whole value chain.

Best practices for the potential roll-out of home care solutions have already been identified with a major logistics component for Japanese distributors looking at their provision in Japan and in emerging markets. The model developed sees logistics companies take responsibility for the home delivery of equipment needed for vital sign checks, various other test kits, home security devices and a range of medical and communication equipment.

The handling of samples such as blood and sensitive drugs, for example, must be carefully managed with guaranteed temperature control. Logistics companies can also offer security monitoring services, including a face-to-face check of individuals and patients at the time of delivery of kits, medicine and food.

Japanese company Yamato Holdings for example is offering many of these services in Japan. These services include refrigerated delivery of samples and medicine between individuals, manufacturers and wholesalers. The company is also in partnership with a supermarket to offer shopping support services for the elderly, handicapped and sick in the shape of daily food deliveries, while trials of face-to-face health checks at the time of food delivery are ongoing.

Another Japanese company, Suzuken, offers delivery services from pharmaceutical companies to wholesalers, retailers and medical institutions and end customers using normal and refrigerated transport options.

By working with other key suppliers such as regulators of health quality, electronics, medical equipment and pharmaceutical suppliers, as well as telecommunication and security providers, logistics companies and managers have global opportunities to stake new ground in the rapidly growing home health and medical care market.

Infrastructure and Logistics – Prerequisites for Sustainable Growth

A country’s prosperity, and with it its economic and social development, depends to a large degree on the level of productivity of its logistics sector. Today’s economies are unthinkable without the value and supply chains that modern logistics make possible. And there can be no long-term peace without prosperity, as the turmoil in Egypt or the economic endeavours of emerging nations demonstrate. More and more governments are coming to recognise the importance of logistics as an important growth factor and thus are attempting to improve the performance of their logistics sectors. An efficient infrastructure is a prerequisite for efficient logistic platforms, since run-down streets, ineffective seaports, one-track railways, or a lack of freight airports impede the smooth movements of materials and goods and thus economic growth. Therefore, it is vitally important in particular for emerging economies such as the BRIC nations, as well as for developed industrial nations like Germany, to make investments in infrastructure. They are necessary in order to be able to handle increasing trade volumes and to secure or improve the country’s competitive position as a business location. In view of increasing transparency, as well as mega-trends like climate change and the increasing scarcity of resources, the topic of sustainability is also gaining in importance.

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The BRIC nations, Brazil, Russia, India, and China plan significant investments in infrastructure, and business, politics, and society will have to develop new ways of thinking about logistics.

This whitepaper has been published at Transport Intelligence on 8 August 2013.

Brazil: Major investments required to ensure further economic development

With around two million kilometres of roadways, Brazil has the second largest road network in the world. However, only about 200,000 kilometres are asphalt roads, and the streets are often in terrible conditions. Together with the highly outdated railway tracks and inadequate airports, this means that Brazil’s transport infrastructure is the biggest obstacle to economic growth and prosperity. That is the reason why, in 2012, the Brazilian government decided to make major investments in the infrastructure. One such measure was that the government granted concessions to private investors who will lay and operate up to 10,000 kilometres of railway track and build around 7,500 kilometres of roads.

The fact that about 60% of the transport volume is moved by road underlines the importance of these measures. In addition, new intermodal hubs will reduce road traffic in economic and logistics centres like Rio de Janeiro and other major cities (“Brasiliens 66-Mrd.-Dollar-Programm,” Financial Times Deutschland, August 15, 2012).

Furthermore, the country faces challenges in the area of rail transportation, since the system works significantly below American or European standards and network density. The 29,000 kilometre long network is centred on the states of São Paulo, Minas Gerais, Rio de Janeiro, and Rio Grande do Sul. Some of the tracks are in deplorable conditions and the fact that the Brazilian system uses differing gauges also complicates operations. As a result, the Brazilian railways carry only about 25% of the country’s total cargo volume. Investments in a number of freight railway lines are intended to improve this situation. Further improvements are expected from the new East-West and the new North-South link.

The seaports are Brazil’s most important interface to world markets. Insufficient cargo handling capacities, too shallow channels, and poor rail and road connections are major disadvantages. Inadequate parking space for trucks in the ports and poorly qualified employees are further factors causing challenges to shippers and logistics companies alike. Government support and private investments are necessary to bring the Brazilian ports up to world standards and to ensure Brazil’s competitive position in world trade.
Russia: WTO accession leads to investments in the transportation and logistics infrastructure.

Russia, which has further opened to world trade with its accession to the World Trade

Organization (WTO), now needs to step up its investments in infrastructure. Sub-optimal roads regularly cause transport delays and breakdowns. According to Germany Trade Invest (GTAI), rundown streets cost Russia 9% of its economic potential. Of course, the influence of the climate and its effects on the road system are not to be underestimated. Specific investments are being made with the goal of increasing the number of multi-lane highways, which currently account for only 8% of the roads in Russia (Umann, Ullrich: Russland tätigt umfangreiche Infrastrukturinvestitionen).

Some of the large-scale projects in this area include the construction of new motorways, like the link between Moscow and St. Petersburg, the development of the M4 motorway into a multi-lane highway from Moscow to Dzhubga, and investments in the M1 as one of Russia’s most important routes. The M1 links the Russian capital to Western Europe and is also part of the Asian Highway network. This project was initiated in 1959 to improve the road system in Asia and involves collaboration among 32 Asian states and the United Nations (ESCAP). Road construction is being fostered at the communal level, as well. The city administration in Moscow is planning to invest more than €24bn in modernisation by 2017.

Russia’s rail network is another major construction project. Because of the sheer size of the country, railways play an important role for both passenger and freight transportation. The Trans-Siberian Railway and the Baikal-Amur main route between Siberia and the Khabarovsk region, as well as numerous secondary lines, ensure that the country has well-developed east-west connections. Thanks to these, cargo only takes 16 days to get from Busan to Helsinki, compared to 47 days on the sea route. Rail connections have gained further importance since Russia joined the WTO. Consequently, the government decided to invest in two high-speed lines: Moscow-St. Petersburg and Moscow-Yekaterinburg.

The freight lines to and from the major seaports are also being improved. For valid reasons: goods like crude oil and petroleum products are exported via the ports in St. Petersburg, Kaliningrad, Novorossiysk, Sochi, Vladivostok, Nakhodka, Magadan, and Petropavlovsk-Kamchatskiy. The (North) Atlantic port of Murmansk, which is kept ice-free all winter, is also a major export hub. Ocean transport accounts for a total of 85% of Russia’s foreign trade. Inland waterway transport is also carrying increasing tonnage and showed a growth rate of 20% in 2011. Seaports are the focal point of expenditures in the area of port development, which is intended to reduce dependency on cargo handling capacities in the Ukrainian and Baltic States’ seaports. In addition, investments are being made in the ports of Taman, Tuapse, and Novorossiysk, as well as Olya.

India – Massive investments in infrastructure are needed for progress towards an industrialised economy

India is well on the way to becoming an advanced economy, but the road is still a bumpy one. The subcontinent is already one of the leading nations for chemical production. At €76bn, its sales volume in chemicals ranks number eight worldwide and is ahead of Italy and Great Britain. It is expected that India will be able to improve this position even more in the future. According to experts, India will be one of the major growth markets for the global chemical industry. Well-trained employees are a major advantage, but high costs for raw materials and energy, as well as low productivity, are the challenges that India is facing. However, it is India’s infrastructure which is the key bottleneck on its way to becoming an economic leader, since it is responsible for high transport costs and regular delays in exporting goods and products (“Indiens Chemieindustrie schafft Anschluss an die Weltspitze,” Chemanager, January 16, 2012; http://www.chemanager-online.com/news-opinions/nachrichten/indiens-chemieindustrie-schafft-anschluss-die-weltspitze). Almost all transport modes are affected. Investment is needed in roads, railways, air traffic, and shipping.

Around 70% of India’s cargo is transported by road, some of it under very difficult conditions. Only about half of the approximately 3.3 million kilometres of roads are asphalted. The National Highways, which account for 65,000 kilometres and connect the major cities, generally only have two lanes and some of them are in terrible shape. In addition, the more than 130,000 kilometres of State Highways do not have unified standards. In the poorer states of India some of these are only one-lane roads.
The railways handle the other 30% of India’s cargo transport. With a total of 64,000 kilometres of track, India’s rail network is the second largest worldwide, following China. However, outdated technology and a low level of electrification, as well as four different gauges of track, prevent efficient use of the Indian rail system. Investments are planned in electrification, double-track main lines, conversion of metre gauge to broad gauge tracks, and modernisation of the technical equipment.

At the same time, the Subcontinent needs to invest in water and power supply. Power blackouts and gaps in the water supply are still common throughout large parts of the country – with all the negative economic consequences. Without electricity, production is impossible, completion of products is delayed, and thus agreed deadlines and contractual obligations cannot be fulfilled. This all leads to losses, in some cases even to contractual penalties. This is one of the key reasons why manufacturing has only been able to contribute a relatively small share to India’s economic growth thus far.

The Indian government is well aware of these circumstances and therefore has announced that it is aiming to spend a total of a trillion US dollars on infrastructure development. A major part, but not all, of this package has been included in the five-year plan for 2012-2017.

China – need for sophistication in logistics in the world’s second largest economy

China has set the goal of putting €124bn into road, highway, and airport construction (“China pumpt Milliarden in die Infrastruktur”, Financial Times Deutschland, September 7, 2012). This budget will cover the costs of up to 30 infrastructure projects that will ensure economic growth and social prosperity. Thirteen highways and ten city street projects, as well as five seaport projects are planned. In addition, two inland waterways are to be improved.

While China’s urban areas have traffic systems that are up to European standards, in the more remote regions of the country, which covers over 9,571,302 square kilometres, transportation is often still below par. Furthermore, cargo volumes have been increasing rapidly over the last years. For example, freight haulage by the railways grew from 535 billion metric ton-kilometres in 1978 to 2,482 billion metric ton- kilometres in 2008. This represented a major challenge for the Chinese rail network and led to transportation bottlenecks. Therefore, the government began setting rail transport contingents. The planned 4+4 PDL rail grid, which is made up of high-speed rail corridors, is intended to bring relief. China’s high- speed rail network, with a total length of 50,000 kilometres, aims primarily at speeding up passenger travel, but along some stretches mixed use with freight trains is possible.

Further infrastructure projects include new long-distance corridors in the west, upgrading existing single- track lines throughout the nationwide network, and the provision of additional capacity for freight transport. Among other things, the current coal transport routes will be improved and further corridors added. In addition, a new 16,000 kilometre long container train network will be constructed.

The Chinese government recognised the importance of infrastructure for the country’s prosperity early on and has made it an integral part of economic growth packages. With its centralised planning, China was able to implement infrastructural programmes quickly and extensively and thus set up the prerequisites that enabled the country to catch up with the leading economic powers in the world. However, logistics expertise in China is still under-developed. Therefore, entrepreneurs like Jack Ma, the founder of the e- commerce giant Alibaba, have been investing in logistics development and are intensifying their efforts to bring China up to world-class standards in logistics, as well. Otherwise, companies like Alibaba will struggle in certain areas to continue growing at the targeted pace.

Germany: increasing investments in maintenance and sustainability

The industrial nations are also showing increasing needs for investments in the infrastructure. In Germany, for example, numerous bridges and roads are in bad repair and need to be renovated. Therefore, the Federal Parliament’s Finance Committee approved an addition of €750m to the transportation budget in 2013.

This sum will be invested primarily in the number one mode of transport, roads. But this will not only benefit cars and trucks; at least €10m are to be invested in bicycle paths along federal highways. All in all, the budget will provide €570m for investments in the road networks.

In comparison, the €40m dedicated to the railways seem marginal and this money is to go to a new noise control package. Another €25m is available for railways that do not belong to the federally owned system. This is the first time that the independent railways will benefit from such stimulus. Another €140m will be invested in waterways, bridges, locks, and dams.

A fresh look at logistics and infrastructures

Many countries throughout the world are making significant investments in infrastructure. However, this alone is insufficient. In view of the global mega trends, such as worldwide population growth, mass mobilisation, scarcity of resources and land, climate change and the increasing awareness of environmental impacts, continuing globalisation, tightly integrated and thus increasingly complex and risky supply chains, it is essential that we re-think logistics infrastructures and systems. Infrastructure and logistics planning, both at domestic and international level, needs to be grounded in a comprehensive understanding of the economy and society, and the logistics sector must increasingly live up to its role as a key enabler for growth and prosperity.

We need to develop fresh ways of thinking which can help ensure that transport and handling hubs contribute to the growth and prosperity of individual countries, regions and the world economy. Concepts are required which not only promote economic growth, but also help improve the common good. Concepts are needed that not only serve individual interests, but also aim at maximising value for the entire system. Development of clear local competitive advantages and of services that increase productivity and improve business conditions for manufacturers and logistics service providers alike must go hand in hand with measures to ensure sustainability.

Modern seaports can serve as an example for the way infrastructure can be shaped in future. Ports have to be viewed from a global perspective and as an integral part of the region; which has to be considered in the planning process. The starting point is a clear understanding of what all the stakeholders expect and need. For example, ports are expected to provide a broad range of services starting with warehouse capacity for all kinds of goods including dangerous cargo, foodstuffs and other temperature-sensitive goods, as well as container leasing, repair, and cleaning, up to comprehensive security plans on-site. These reduce the risk of theft as well as potential terrorist activities. Environmentally sound disposal of oily wastes, ships’ waste water, or solid waste and chemicals is also an essential part of a modern port’s range of services, as are noise reduction measures and traffic safety systems that ensure safe and efficient waterside and landside operations in the port. In an increasingly transparent world, there will be rising demand for competitiveness and sustainability. The concept of a smart seaport pays attention to sustainability, while at the same time increasing productivity through the use of state-of-the-art technology, embedded in a holistic concept. Such ideas can also be applied to other areas, for instance inland ports and airports, as well.

Those responsible can make good use of the digital interconnections between the economy and society in implementing these and other added value services. For example, real-time data on ship movements can be leveraged to coordinate landside processes more efficiently. When docking and unloading times are known well in advance, logistics service providers can optimally plan and schedule their operations so as to reduce costs and optimise the utilisation of resources. Increasing digitalisation in logistics and the continuing spread of RFID makes processes more efficient and safe, since containers, pallets, and wire mesh containers can be tracked worldwide, thus boosting productivity and security. Furthermore, it is possible to simulate alternative contingency plans. In this way, service providers can find optimal solutions and respond quickly in case of unexpected events such as accidents or natural disasters.

In order to put such concepts into practice, it is necessary to have a high-performance infrastructure and also transverse platforms that are often developed and implemented not by just one stakeholder, but by collaboration among diverse stakeholders. Modern logistics concepts often require not just foresight and openness to change, but also the ability to cooperate with various stakeholders. Many companies and governments will have to shift their way of thinking and acting away from concentrating on competition and differentiation towards looking for common interests and joint activities.

Facilitating continuous dialog with stakeholders

Large parts of the population in general will have to change their ways of thinking as well since they often over-emphasise the negative aspects of infrastructure and logistics projects. The most common arguments that logistics facilities and service providers face involve concerns such as high land consumption, increased traffic, more noise pollution, and environmental impact. Such worries are often fed by a lack of knowledge or by uncertainty. Many citizens and local residents do not consider the whole picture. People tend to focus on isolated issues, neglecting the economic and social benefits and advantages of the overall system. Large parts of the public often oversee that the area-wide supply of food and other goods would be impossible without warehouses and commercial traffic. Modern life needs logistics systems, which at the same time benefit the community and have very limited negative impact. In order to raise the understanding and acceptance throughout the population and to avoid resistance and failure of logistics projects, the logistics sector has to facilitate a continuous dialogue with all relevant stakeholders. In this light, it is important to take concerns seriously and to inform the public continuously about respective measures for risk mitigation and about the importance of logistics for the economy and society. The connections between logistics and economic and social welfare need to be stressed constantly.

This can be achieved if technological, environmental, and social aspects of logistics are integrated into national, regional, and global strategies. These need to be grounded in appropriate regulatory frameworks and developed by the logistics industry. Thus, the logistics industry must develop master plans for its sector and contribute to area development initiatives. These plans should aim at creating holistic logistics systems that are embedded in macro-economic strategies. The logistics concepts and plans must respond to the concerns of all stakeholders and at the same time provide efficient supply chain solutions and systems for businesses and the population as a whole.

China: Yesterday, Today and Tomorrow

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Over the last three decades, the relentless rise of China’s export-driven economy has changed the face of world commerce. But China is now in flux as its economy transitions into a new stage of development, rendering the assumptions of yester-year obsolete. Tomorrow’s China will be a very different place, creating new opportunities, with new risks for manufacturers, traders, banks as well as supply chain and other service providers.

This whitepaper has been published at Transport Intelligence on 20 September 2013.

 

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CVA – Corporate Value Associates, a global strategy boutique, tracks critical trends in consumer and customer behaviour, companies, capital markets, infrastructure investment, government and social policy. CVA uses this information to help evaluate and forecast economic growth, and identify and capture opportunities by designing strategies and implementation plans that create value for companies around the globe.

Bruno Salle, Managing Director (Asia-Pacific) at CVA, believes the current slowing of GDP growth is part of a natural, needed rebalancing of China’s economy. “China is moving from an economy where growth was overly reliant on investment and exports to one where internal, private consumption is becoming one of the key drivers of growth,” he says. “This is a major structural transformation. Exports are – and will remain – an important contributor to China‘s economy. But the focus of growth is shifting from construction and manufacturing to more services, innovation and consumerism”.

First and foremost, China’s next stage of economic evolution will mean slower GDP growth rates. Reliance on exports and foreign investment will decline and the economy will be rebalanced to reflect the spiralling number of middle class consumers. These buyers will continue to grow in confidence and sophistication, driven by quality of living rather than just price. “The current slowdown isn’t the end of Chinese growth,” explains Salle. “It’s the start of growth that is not primarily bound to exports and heavy industry. But this is a process still in its infancy and it is important it is viewed in this context. It will take some time until a clear picture of China emerges, but there are clear trends evident already.”
Certainly, government policy makers are already leaving more and more decisions to the market. We also expect to see the rise of large private enterprises, the quality of suppliers of most products and services to broaden, and more determined steps taken to tackle corruption. The winning state-owned enterprises will need to learn to be more market driven as competition becomes increasingly fierce and government more transparent. Logistics value chains will largely be shaped by China’s inland development, the embrace of e-commerce and evolving international trade flows, particularly on intra-Asia lanes as China’s trade with neighbouring emerging markets continues to grow. Together, these three trends will bolster the logistics and supply chain business in China.

China‘s relatively strong road, rail, air and communication networks, large and flexible labour force and manufacturing know-how, particularly in the area of mass production, will remain major draws for producers of all shades. But the high cost of land and rising cost of labour on the coast, allied to growing domestic demand, will accelerate the shift inland of non-premium manufacturing. “The government is promoting the development of middle and western China, so foreign investors will face diminishing preferential policies in coastal areas,” expects Jian Lou, Partner (China) at CVA. “As businesses adapt to higher costs, new innovative business models will emerge.” China will transfer best practices to hinterlands, take more control of its own production standards and make greater efforts to protect intellectual property rights. However, Chinese refinements of western researched, designed and manufactured products will remain a concern.

China’s restructuring will have a major impact on logistics needs and demands. The market will, for example, become more specialised by industry sector and mode. Consolidation can also be expected, and logistics companies will be forced to continue expanding networks as markets move to Northern and Western China. The more balanced manufacturing landscape in China will bring more balanced flows and should therefore result in better capacity utilisation and lower costs for carriers, logistics companies, shippers, as well as buyers and consumers in China and worldwide. But extracting the full benefits and value of making this transition will require new skills and ways of operating transportation businesses and networks.

E-tailing is a standout Chinese success story. Massive investments in e-commerce businesses and IT has opened new markets beyond the tier one and two cities in China. E-commerce has also driven demand for Chinese products in other parts of the world, such as Russia and Brazil. This is creating vast new internal and international distribution requirements and is having a major impact on the logistics value chain. Backing up this success within China will require higher delivery standards and more efficiency. In international markets, e-commerce companies and logistics providers are facing major challenges in customs clearance and finding the appropriate delivery platform. These trade and business obstacles also need to be overcome. “The transfer and adaptation of best practises from the West will be as important as bridging the gap in business practises and culture between the different markets,” says Lou. “Leveraging the knowledge of experts and companies experienced in this field will be critical to success.”

The renminbi (RMB) is gradually being internationalised, paving the way for even more efficient commerce, particularly between Asian countries. Indeed, intra-Asian travel and trade is expected to prosper, not least as ASEAN member countries create a new free trade area from 2015. China will not only seek to bolster its regional influence, but look as well to emerging markets in Africa, South America and the Middle East, where it has already forged relationships through its huge consumption of commodities and investment in infrastructure. Logistics players focusing on intra-Asian flows and emerging markets will benefit from these developments.

A paradigm ‘thought’ shift in China among citizens and policy makers will be a key driver in a gradually growing embrace of environmentalism and Corporate Social Responsibility by individuals and State. This, in conjunction with the increasing enforcement of laws and operating standards, will impact the choice of equipment and the way logistics players operate. Companies need to be aware of all the trends and changes and need to assess the relevance of these developments for the future operating requirements and business plans.

All participants in the logistics value chain need to adjust to the changing landscape. The attractiveness of the logistics offer to shippers and supply chain customers is a function of all components of the logistics value chain, including information, security and inland transport to, for example, ports in respect of price, time and quality. Logistics companies will look for the optimal value proposition at river ports, seaports and airports and will go where they can make the best margins when serving their customers in an increasingly competitive market. While larger logistics players will act strategically to serve their more sophisticated buyers, smaller transportation and logistics companies will go wherever they get the best offers from brokers and consolidators.

Overall, increasing sophistication in the logistics value chain can be expected, which represents a major opportunity for those players which prepare best, and a major risk for those who do not. It will be a challenging journey for all participants and much of the path remains unclear. What is clear, however, is that companies wishing to win and grow in China need to deeply understand China’s international economic dependencies and interdependencies of internal markets, including government views and plans. For example, expanding business or moving production into China’s interior requires a deep knowledge of different cities, verticals, customers and competitors – local and foreign – if all options are to be properly assessed and the no regrets and best value option moves identified and successfully executed.

China will remain an opportunity to diversify business portfolios and overtake even larger competitors for companies which have the necessary insights. For those who do not, it will be a harsh proving ground.

“It might take time for China‘s economic output to shift from growth in manufacturing and construction to economic growth built on services and innovation and domestic consumption,” says Salle. “What should be remembered is that China has been able to weather and overcome huge economic, social and political challenges and manage far reaching reforms throughout its history, including over the last three decades.” There is no reason to think it will not be able to do so again and again.