What’s shaping the

global logistics market?

MSc. Pham Thi Mai Phuong – Logistics Division, Vietnam Maritime University
THE CONFLUENCE OF DEMAND-SIDE AND SUPPLY-
SIDE TRENDS

- Globalization - Wider service portfolio

- Inventory reduction Industry - Product differentiation
- Out-sourcing transportation - Liberalization of markets
- Supply chain complexity - Enhanced value proposition
 LEARNING OBJECTIVES

• This part will familiarize the students with:

- The key macro-economic and demand-side drivers that have brought

about today’s logistics industry

- How the logistics industry has gone far beyond simple transport and
warehousing services, becoming the glue that holds together the
systems that underpin the global economy
TRADE AND
GLOBALIZATION

•What is globalization?
TRADE AND
GLOBALIZATION
• Globalization is the spread of products,
technology, information, and jobs
across national borders and cultures. In
economic terms, it describes an
interdependence of nations around the
globe fostered through free trade.
TRADE AND
GLOBALIZATION
• One of the driving forces behind the
trend towards the free movement of
goods between countries has been
trade groups

• Ex: WTO, EU, ASEAN, NAFTA

Time for reading

• Logistics in EU

• What is EVFTA?

• How will EVFTA affect to logistics in Vietnam?

Growth in trade

• World trade is a key driver of the international

logistics market.

• Although most elements of road freight may be

dependent on domestic economies, airfreight and
sea freight are dominated by the performance of
trade between nations – that is ‘world trade’.
World merchandise trade volume and GDP growth, 2015-2024
 TIME FOR READING
Overview
Navigating through supply chain
disruptions
The growth of Asian Trade
• The past decade has seen a major shift in trade patterns, with traditional trade-
lanes, connecting China with the United States and Europe, losing some of their
importance.

• Africa, for example, is amongst the fastest growing markets for China, as investors
target mining and infrastructure opportunities. As a result freight forwarders,
such as DHL and Damco, are developing this trade-lane by expanding multi-modal
products combining ocean freight and airfreight services to new destinations.
China is also amongst the largest trade partners for Argentina, Chile and
Colombia. In 2009, China became Brazil’s largest trade partner.
The growth of
Asian Trade
• The development of the
‘Modern Silk Road’ between
Asia and the Middle East

• The increase in intra-regional

trade -> complex intra-Asia
supply chain

• Regionalization of upstream
and downstream supply chain
 Commercial
Merchandise services
traders traders
improving improving
their their
rankings rankings
among the among the
world’s top world’s top
50, 2009- 50, 2009-
2019 2019
Global to regional trade networks
• The world’s economy is moving from globalization to regionalization of supply chains.
This involves a transformation from East–West and West– East Flows to complex
networks of developed and emerging markets. (Brazil, Russia, India and China).
• Global flows of goods are becoming more disparate. In 1990, 63 per cent of global
flows of goods moved through the top 50 routes. By 2011 this had fallen to 54 per
cent.
• Cross-border flows of goods, services and finance from emerging markets in 2012
accounted for 38 per cent of the total, up from 14 per cent in 1990.
• South–South trade has grown from 6 per cent of goods flows in 1990 to 24 per cent
in 2012 (Manyika et al, 2014).
A return to globalized supply chain

• For many of the global consumer goods manufacturers, sales growth in

emerging markets will not necessarily result in higher global flows of
goods.

-> the issue of transport provision

• The development of mega-cities

-> Logistics will increasingly be focused around cities rather than countries.
A return to
globalized supply
chain
Why should mega-city
development have an impact on
supply chains?
A return to globalized supply chain
• Mega-cities will create their own economies of scale, supplied by local/ regional
production facilities.
• Consumer goods will be customized to local tastes.
• Each city will develop its own unique ecosystem, which takes into account the
movement of people, data, finance, energy, waste, goods and services.
• Transport demands will be specific to each city’s needs and capabilities: poor
planning and infrastructure will result in high logistics costs.
• Fulfilment, packaging, miniaturization and reverse logistics will require increased
intensity of logistics provision.
THE IMPACT OF SUPPLY CHAIN
MANAGEMENT PRACTICE ON LOGISTICS
• For much of the 20th century the predominant manufacturing strategy was
based around creating economies of scale (Just-in-Case manufacturing)

• During this period the transport market was characterized by:

- full loads (inbound and outbound);

- low levels of service provision required;

- long lead times;

THE IMPACT OF SUPPLY
CHAIN MANAGEMENT
PRACTICE ON LOGISTICS
• JUST IN TIME delivery and the
level of agility and flexibility

• Case study: Just-in-time supply

chain strategies of Toyota

• The impact on transportation

requirements?
Supply chain hazards of inventory reduction strategies
Centralization of inventory

• Distribution strategies
have been largely
influenced by the trade-
off between the cost of
moving goods to market
and the cost of holding
inventories.
Centralization of inventory
• The relative cheap cost of transport has allowed manufacturers and retailers to store
goods in centralized locations, and supply them over longer distances. This has many
advantages:
• cost of inventory holding falls;
• less buffer stock is required in each warehouse;
• there is less ‘shrinkage’, that is, loss of stock through theft or damage;
• lower levels of redundancy occur;
• warehouse costs are lower.
The changing structure of supply chain cost
Example of Europe
• For the high-tech sector, the
Holland International Distribution
Council estimated at one point that
about half of facilities are located in
either The Netherlands, Germany
or France. In contrast just under a
quarter are located in large, but
peripheral markets in the UK, Spain
and Italy.
• Is it possible to treat Europe as a
single market?
Example of Europe

• Problem
• Many products still need to be customized to meet national regulations
or take into account cultural preferences.
• From supply chain management perspective it is preferable for as many
goods to be produced in as generic form as possible, so they can be
directed to the market where there is greatest demand

-> Postponed manufacturing

 Out-sourcing Logistics

Core product versus product ‘surround’, illustrating the importance of the logistics-related elements
Stages in
the
logistics
out-
sourcing
process
Evolution towards value adding services
Evolution towards value adding services
From To
• Single function transactional • Strategic multi-functional
relationship partnerships
• Local, regional reach • Global, door-to-door coverage
• Physical asset heavy, process • Integrated IT solutions
• execution • ready to use
• One time cost reduction • Continuous innovation
• Cost plus management fee • (cost & service)
• Fixed upfront cost to charge • Risk/gain share (tomorrow’s
• lower cost, today)
• No/reduced need for capital
Summary
• This part has examined the main demand-side (that is, manufacturer and retailer) and supply-side
(that is, logistics service provider) driven trends that have created the modern global logistics
industry

• It addressed the growth in trade and globalization of supply chains

• The transformation of supply chains management practice from inefficient and costly ‘Just-in-
Case’ manufacturing to ‘Just-in-Time’ and the impact this had on logistics companies.

• It also addressed how centralization of inventory has led to the development of local, regional
and global distribution hubs, which itself has created the need for more transportation.

• Finally, the part dealt with out-sourcing by manufacturers and retailers to third-party logistics
providers and the evolution of the sector towards the supply of increasingly high end, value
adding services
Key points to consider
- Logistics service providers need to be increasingly agile to operate successfully in a fast-
moving and complex environment.

- ‘Intellectual capital’ is now as important as transport assets or IT to winning major

contracts from customers looking for innovative supply chain cost-cutting solutions.
- Logistics companies need geographic scope to be able to provide end-to-end services in
certain globalized sectors. However, this should not be overstated, as most retail,
consumer and automotive customers still have mostly national or regional requirements
taking into account local consumer tastes or regulations.
- Asia is the fastest developing logistics market and, with increasing supply chain
integration in the region, this will continue to be the key market for logistics investment
for many years to come