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Globalisation v regionalisation

There are some in the industry that believe that closer links between industry giants might alleviate revenue concerns.
COMMENT, Transportation

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In May, German giant DHL unveiled a glimpse into the future of international airfreight and logistics via the launch of its new European air hub at Leipzig.

With exceptional trimodal connections through road, rail and air links, the company is clearly hoping to win organic growth from a strategic location that is set to benefit from improved infrastructure in Central and Eastern Europe, and is intended to leverage the growing trade routes with the Middle East and Asia.

Amid the razzmatazz of the opening ceremony, however, there were serious concerns about the future of the express operator's US operations, where it wrote down around US$600 million worth of assets in 2007. It was later disclosed DHL had signed a deal with UPS, which would involve the latter taking over some of the former's airlift operations.

There are some in the industry that believe that closer links between industry giants might help to alleviate revenue concerns, and this kind of activity may well ring bells with Middle Eastern readers, who will be aware that consolidation and mergers are a natural solution to economic uncertainty and the ever-increasing fuel price. But consolidation may only be a short-sighted answer to what could be considered as a wider shift in the world's economic currents.

During the Leipzig launch, one of DHL's senior executives outlined his view that the continually rising oil price - and the current lack of an obvious solution to the quandary - might lead to an end to a concept of logistics globalisation and a move towards industry 'regionalisation' instead.

Whereas high prices have forced many companies to outsource offices and production to countries like China and India, the argument is that the cost of transport will force many players to try and relocate those portals closer to home.

A recent article in a US business magazine cited the startling observation that with oil valued at $200 a barrel, it would cost $10,000 more to send a 40-foot shipping container to the Eastern United States from China, rather than Mexico.

Small wonder, therefore, that DHL has seen fit to move its hub closer to the cheaper markets of Eastern and Central Europe. On some trade routes, the cost of transporting some products, such as coal, has become more expensive than the value of the product itself.

So what does all this mean for the airfreight industry in the Middle East? Most importantly, perhaps, it is difficult to tell how - and if - the factors affecting the US market will affect operations here.

In addition, while Europe and the US are distant from the emerging markets of India and China (not to mention Central Asia and Africa), the Middle East is a lot closer, thereby cushioning the region against the expected higher transport costs.

As a result, any potential regionalisation' expected by the more established global operators may pay substantial dividends for companies plying their trade in the Middle East.

Ed Attwood is the editor of Air Cargo Middle East & India.

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