GLOBAL LOGISTICS HUBS OF TODAY &
THE COMING DECADE
by Dr Henry Chin, Head of Research, CBRE Asia Pacific & Dennis Yeo, Managing Director, Industrial & Logistics Services, CBRE Asia
Since 1980, world GDP has grown, on average, at just under 3.5 per cent annually. Over the same time, global trade has grown at 5.5 per cent annually, an expansion of almost 600 per cent. This explosion of cross-border trade reflects the growth of global supply chains and the expansion of consumption and production into new locations.
In order to support this trade network, logistics hubs that facilitate the manufacturing and distribution of goods have been established in virtually every country around the world. Key among these are the large and strategically located global logistics hubs. These global nodes process goods by facilitating exchanges between various modes of transport, including sea, air, rail, road and inland waterways—or any combination of these—optimising the distribution process and driving down the cost of trade between suppliers and end-users.
In the recent Global & Emerging Logistics Hubs 2015 report published by CBRE, the research uncovers the different elements that are instrumental in creating global hubs, which hubs are leaders in the global supply chain today, and which hubs are on the verge of becoming the leading centres of international trade in the future.
It’s a small world afterall
One of the many consequences of globalisation has been the increasing interconnectedness of geographically dispersed nations in both production and trade. While international trade is not a new phenomenon, the degree to which nations depend on each other for economic activity is unprecedented.
Consider a bolt in a car engine. That one part may have been sourced as raw material in Europe, sent to Asia to be manufactured, then shipped to Mexico for assembly in the car, and finally sent to the US for final delivery to the consumer. It is no longer practical—and may even be impossible— to directly connect production and consumption along a single supply chain. As a result, a new paradigm has arisen: the hub-and-spoke model of distribution.
Under this model, cargo is collected via ship, truck, airplane or rail car from its point of origin (the ends of the spokes) and transported to a central processing facility (the hub). The goods are then either stored in a warehouse or distributed to the next point on the supply chain from this central processing location. This method simplifies the shipping process for companies by reducing the management burden associated with tracking the origin and end-point of each shipment. This also allows transportation companies to be more cost-effective by delivering full loads to fewer destinations.
Global hubs, the trend of supply chain
Larger trends in the global supply chain shape the emergence of global hubs. Entire industries can move to new locations, taking advantage of newly discovered cost savings or growing markets. Global supply chains can also shift in reaction to political or economic disruptions seeking lower-risk options to move cargo.
While most of the supply chain shifts in the Americas and Europe are focused on heavy, expensive manufacturing, shifts in Asia have been seen on the other end of the spectrum. Low-end manufacturing, such as garment and textiles production and electronics component assembly, has steadily been moving from Southern China to Western China and Southeast Asia.
Southern China, encompassing the Pearl River Delta, has been the traditional light industrial manufacturing centre of the world. As wages continue to rise and China attempts to move up the manufacturing value chain, there has been a shift to more sophisticated heavy industry manufacturing. From 1995 to 2013, the ratio of light to heavy industry, in terms of gross value, has changed from 1.39:1 to 0.6:1.
Vietnam has been the major benefactor of the change in manufacturing mix due to its low wages, strategic location to China, improving infrastructure and business-friendly political environment. For example, in July 2015, the Vietnam government relaxed restrictions on foreign direct investment, lifting the ownership cap on Vietnamese public companies. Additionally, multiple international electronics companies have made investments and opened factories in Vietnam over the past few years. In fact, electronics exports have grown from $4.2bn in 2009 to $38.4bn in 2013.
Vietnam is merely one stop as manufacturing spreads outward from China. Southeast Asia as a whole is becoming more closely integrated through the Association of Southeast Asian Nations (ASEAN), comprised of Indonesia, Malaysia, the Philippines, Singapore, Thailand, Brunei Darussalam, Cambodia, Laos PDR, Myanmar and Vietnam.
As of August 2015, ASEAN has implemented 457 of 505 measures that will help bring ASEAN integration into fruition. With uniform regulations and free flow of goods from the ASEAN Economic Community (AEC), the relocation of lowend manufacturing out of China may accelerate. The shifting supply chains are aiding in the creation of new logistics hubs as manufacturers continue to search for cost savings and increased efficiencies.
Benefitting from e-commerce boost
Retail innovations such as e-commerce have a trickle-down effect to inventory management and lead to disruptions in the global supply chain network— speedto- market is more important than ever. The result is that previously advantageous locations can lose their appeal. The technical ability of locations and buildings to support the ever-increasing demands for both scale and speed of throughput is an ever-more important determinant of their market position.
The e-commerce and e-tailing market has been particularly strong in Asia. According to eMarketer, e-commerce sales in Asia Pacific will overtake North America in 2015, accounting for 33.4 per cent of global e-commerce sales, versus 31.7 per cent in North America.
e-Commerce shipments are smaller in size and require more technology and expertise to execute efficiently. As a result, modern logistics facilities are being developed in the traditionally strong logistics hubs of Tokyo, Seoul and Taipei. Brick-and-mortar retailers are entering the online sales market, resulting in strong demand for modern logistics in Tokyo, as logistics networks must be upgraded to accommodate the higher volumes of package movement. Additionally, the online trend is strong in Taiwan and South Korea, where 83 per cent and 73 per cent of shoppers, respectively, go online to avoid going to a physical store.
Besides the developed markets, the new consumer class in the emerging markets is creating opportunities for logistics development. Online shopping is more prevalent in China, India and Vietnam as quality shopping centres are located far away from each other. The scale of e-commerce in China is staggering. In 2014, there were 360 million online shoppers, a number larger than the population of the US.
The Asian market to watch
The global logistics market is ever shifting. The processes and factors involved with any change move over far-reaching and long-term time frames. As new technologies emerge, populations shift and economies grow, which local and regional hubs are poised to become global hubs tomorrow?
In Asia, Ho Chi Minh City is considered a local hub due to its less developed logistics sophistication, low number of trade agreements and less advanced transportation links. However, heavy infrastructure spending, increasing manufacturing and logistics development, the negotiation of several trade agreements (with the largest being the Trans-Pacific Partnership) and the implementation of favourable government policies may propel the city into the global rankings in the future.
It has a large and growing population base, forecasted to grow to nearly 9 million persons by 2025. Closer rail linkages (through the Kunming-Singapore Railway Project) to China will lower costs and speed up the manufacturing development in the country. With its strategic location and growing seaport, Ho Chi Minh City may find itself as one of the key stops in the global supply chain.