But supply chain executives surveyed still see opportunities to increase business activity in emerging markets, despite a shift in the factors driving investments, the Agility Emerging Markets Logistics Index report reveals.
Supply chain industry executives hold little hope for a global recovery from the Covid-19 pandemic in 2021, although many still see opportunities to increase business activity in emerging markets, despite a shift in the factors driving such investments, the annual Agility Emerging Markets Logistics Index survey today reveals.
More than half (51.5%) of the 1,200+ supply chain industry executives surveyed believe it will be at least 2022 before the global economy is back on track, foreseeing that among Emerging Market regions, only Asia Pacific is likely to recover during this year. And most respondents believe it could be 2024 before the South American and Sub-Saharan African markets recover.
But despite believing that Covid-19 has caused greater economic damage than the 2008- 2009 recession, more than half of supply chain executives surveyed plan to increase business activity in emerging markets or express more confidence in those markets, the report noted. And the survey also noted that there has been a considerable shift in the factors driving emerging markets investment.
In the data-driven Index – an annual snapshot of industry sentiment and ranking of the world’s 50 leading emerging markets – China and India once again claim the top-ranking positions, based on a broad gauge of countries’ competitiveness on the strength of their domestic and international logistics market and business fundamentals.
Vietnam emerges as a top performer
In 2021, Vietnam emerges as a top performer, having effectively suppressed the spread of Covid-19 and maintained its attractiveness as an investment destination. Vietnam leaped to No. 8, up three spots, as Asia Pacific and Gulf markets dominated the top 10. Nigeria also saw its ranking improve to No. 30 overall. Its upward trajectory is powered by notable gains in the ranking for Domestic Logistics Opportunities, where a six-position rise saw it claim the No. 10 spot for Domestic Logistics Opportunities, the highest position a Sub-Saharan Africa market has ever achieved in that ranking.
Malaysia also saw improved Domestic Logistics Opportunities, while in the counterpart International Logistics Opportunity ranking Turkey, Brazil, Morocco, Ukraine, Kenya and Myanmar all saw improvements.
Leading choices for relocation
According to those surveyed, Vietnam, India and Indonesia are the leading choices for relocation away from China, followed by Thailand and Malaysia. Just 7.8% of industry executives would re-shore production to home countries.
The survey and its corresponding report, which is compiled annually by Transport Intelligence (Ti) on behalf of third-party logistics provider Agility, also highlights that Covid-19 is a “once in a generation event which has profoundly altered the course of development in emerging markets, with economic damage worse now than that caused by the Great Recession of 2008- 2009”.
But despite the caution, “the global downturn has the logistics industry feeling opportunistic – if not optimistic – about emerging markets”, the report notes, adding: “Fifty-two percent of respondents say they plan to increase business activity in emerging markets or are expressing more confidence in those markets. Only 19.5% say they are less confident in emerging markets.”
Shift in factors driving investment
But there has been a considerable shift in the factors driving emerging markets investment, the report indicates. Nearly half (45.5%) of survey respondents indicate that overall cost is a top consideration – but only 2.2% assert that low-cost labour is a key factor in assessing emerging market investment opportunities. After total cost, industry executives say the most important factors are government bureaucracy and regulation (25.8%), infrastructure quality (14.1%), and supply of skilled labour (8%). Moreover, as companies examine new production locations, their biggest concerns are insufficient infrastructure and additional cost.
Logistics executives stated that they felt disruption across the entire supply chain in 2020, with significant percentages saying they have struggled to cope with port congestion, transport capacity, supplies of parts and inputs, distribution and delivery, maintaining international operations, and storage.
Sixty percent of logistics executives in the survey say the pandemic has resulted in permanent changes to the way their businesses operate globally or regionally. About 25% said it’s too soon to tell.
Building resilient supply chains
In terms of how are logistics executives are trying to build more resilient supply chains, by a two-to-one margin they favour accelerated adoption and integration of technology plus enhanced digital business (40.3%) over movement of production through multi-shoring, near-shoring or reshoring strategies (20.9%).
The online retail and healthcare/pharma sectors are expected to see extremely strong growth in 2021. The automotive, store-based retail and industrial sectors will struggle.
The sustainability movement is proving to be durable. Twenty-seven percent of executives surveyed say their companies are boosting implementation of environmentally sustainable practices in the wake of the pandemic. Another 45.9% say their plans are unchanged, suggesting they have no plans to retreat from sustainability commitments.
John Manners-Bell, Chief Executive of Ti, said: “The strength of the Agility Emerging Markets Logistics Index has always been to differentiate between those emerging markets which demonstrate resilience in the face of adversity and those which are more ‘fragile’. This year is no exception. Although some – especially China and Vietnam – have been able to rebalance their economies around domestic industrial and consumer demand, the majority are still highly dependent on international markets and investment.
“A lack of global demand combined with the breakdown of air and sea logistics networks have had severe consequences for these economies and societies. As the Covid crisis finally unwinds over the next two years, those which are the most resilient will bounce back the fastest. Inevitably those which have failed to embrace market, trade, governmental and social reforms will be hardest hit by the fallout from the pandemic.”
The ranking offers a comparative assessment of the factors that make 50 of the world’s most promising emerging logistics markets attractive operational environments and investment destinations for logistics providers, freight forwarders, shipping lines, air cargo carriers and distributors. The Agility Emerging Markets Logistics Index is compiled by Transport Intelligence (Ti) and has been published in partnership with Agility for more than a decade.
Source: Lloyd´s
