Emerging markets feel 'good' - but fail to make up for weakness elsewhere

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Yesterday, UK consultancy Transport Intelligence, in association with Kuwait-headquartered freight firm Agility Logistics, released the third in its annual series of the Emerging Markets Logistics Index, which if anything, illustrated the seemingly endless contradictions in a globalised world struggling to shrug off recession (see chart below).

One of the repeating features in each of the three editions of this series has been the growth prospects of the BRIC counties – and the following 41 nations that the researchers have selected to make up the top 45 emerging markets – relative to the stagnant conditions experienced in the mature markets, particularly the US and Europe.

But the index, which measures individual countries’ market size and growth, compatibility with international trades, and connectedness, also demonstrated the way in which emerging markets have begun to slow as the weakness in mature markets forms a drag on their growth. This is backed by today’s news that the World Bank has revised downwards its global growth forecasts as emerging markets start to suffer.

Nevertheless, in a survey of logistics executives accompanying the index, more respondents to the survey felt “very good” about emerging markets’ prospects than ever before, as several new trends have begun to be evidenced by hard data rather than mere anecdote.

Turkey and Mexico, two countries most commonly identified as beneficiaries of the trend towards near-sourcing – locating production facilities closer to the end consumer markets of Europe and the US respectively – both moved up the rankings as rising costs in the established production bases of China, allied with increasing transport costs, made them more attractive to foreign investment. Here at last is some hard evidence of the near-sourcing trend.

Other, longer term trends, continued unabated. The BRIC nations continued to be those that logistics and freight executives identified as having the greatest potential for business in the short term, partly due to the huge sizes of their markets.

The prevailing sentiment among executives was that India and China, and to a lesser extent Brazil and Russia, represent some of the best opportunities for new consumer demand, as a result of the rising disposable income of their burgeoning middle classes.

“This reflects China’s GDP growth, which still remains one of the highest in the world,” TI economist Lucy Palmer told The Loadstar.

But that dynamic presented logistics executives with a dilemma: to be able to cater for both the trend towards near-sourcing of import products into the mature markets which, despite their current recessionary weaknesses, still represent the largest consumer markets by a large margin, as well as supply the new consumer demand in emerging markets which are a far greater distance from the established markets.

“The savings and efficiencies gained by “near-sourcing” on the doorstep of large developed markets – for instance, producing in Mexico to be close to the United States or in Turkey for proximity to the European Union – must be balanced with their ability to tap into the growing consumer class in the emerging markets of Asia, the Middle East, Latin America and Africa,” Ms Palmer wrote.

In addition, some of the results question the whole notion that consumer demand in emerging markets will counterbalance the weakness in mature markets. In the list of top 10 airfreight destinations from the US and Europe, nine showed volume declines in 2012 compared to 2011. Only Saudi Arabia imported more in 2012 from the US and Europe than in 2011.

Other results of the survey defy anecdotal evidence. Ukraine’s rise up the rankings is said to be as a result of improvements in security, and yet today [16 January] international ground handler Swissport finds itself in a Kiev commercial court in a last ditch attempt, it claims, to save itself from being the victim of particularly vicious case of corporate raiding.

And of course the headline growth figures often come from countries that are starting from a small base, with Middle Eastern nations taking the top five spots in the fastest growing sea freight trades into the US and Europe; and Paraguay, Cambodia, Uruguay and Kazakhstan the fastest growing import markets for US and European sea freighted goods.

Air cargo trades remained dominated by China, India and the perishable goods-exporting nations of Colombia, Kenya and Chile, while the fastest growing were Ethiopia, Algeria, Chile and Nigeria.