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TOP 10: Emerging Logistics Markets 2011

Saudi Arabia, Oman and UAE included in Transport Intelligence list.
SPECIAL REPORTS, Top 10...

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TOP 10: Emerging Logistics Markets 2011

Transport Intelligence has published its annual ranking of the hottest emerging markets in global logistics, which compares 39 up-and-coming countries and identifies a series of key attributes that make them attractive for investment. “It is clear that emerging markets are playing an increasingly important role in global supply chain strategies as manufacturers look to the next wave of low cost production locations,” explains John Manners-Bell, chief executive officer of Transport Intelligence. “However, investors need to be cognizant of the specific challenges which exist in each market as well as the opportunities. Our index enables companies to differentiate between those markets which offer immediate potential and those which will take much longer to develop.”

10) Chile
Making its debut in the top ten, Chile overtook Thailand and Malaysia in this year’s ranking, moving three places up. According to Transport Intelligence, the country benefits from a high number of trade agreements, enabling good access to foreign markets for its exporters. All indicators have pointed to a firmly-based and relatively vigorous recovery from two major negatives: the international recession of 2009 and the devastating earthquake of February 2010. In particular, there was a strong recovery in airfreight last year, with 17.5% growth, and a further 11.5% can be expected this year, according to Business Monitor International (BMI). Transport and communications minister Felipe Morande has said that the country's ports could reach the limits of their capacity by 2014, because of continued economic growth. Chile's largest port, the port of San Antonio (POSA) is forecast to experience growth of 9.0% in total tonnage in 2011, after a gain of 11.2% in 2010, and a prior fall of 8.3% in the recession year of 2009. By the end of 2011, POSA will have handled 14.68mn tonnes. Meanwhile, after 10.1% growth in 2010, rail freight volume will expand by a much lower 1.1% in 2011 to reach 28.377 million tonnes.

9) United Arab Emirates
Although the United Arab Emirates has dropped one place in comparison to last year’s list, its still the second highest entrant from the Middle East and according to Transport Intelligence, it topped the ranking of smaller markets (those with less than $300 billion GDP). In particular, the UAE was praised for improving its border administration and liner shipping connectivity over the past year. According to the survey, a little over 10% of all respondents expect the UAE to emerge as a more attractive market for third-party logistics than Brazil, in recognition of the UAE’s growing role as an important gateway into member countries of the Gulf Cooperation Council, as well as an important transit hub for goods between Asia and Europe/Africa. These sentiments are shared by Business Monitor International (BMI), which predicts that the total tonnage at Jebel Ali and Port Rashid will reach 148.2 million tonnes in 2011, while airfreight volumes at Dubai International Airport will grow to 2.3 million tonnes, reaching 2.81 million by 2015.

8) Turkey
After peaking at number seven in 2009, Turkey has dropped one position to number eight in this year’s list. However, the country’s logistics industry has continued to benefit from an increased focus on “near sourcing” markets by foreign investors, who are looking for countries that are located closer to end-consumers in the west, especially with concerns about economic over-heating in China and highlight global oil prices. Turkey is a strong contender in this sense, with an impressive manufacturing base in the automotive, clothing and textile industries, as well as a direct land link to the EU through its newest members, Bulgaria and Romania. Business Monitor International has predicted a growth rate of 7.2% in the country’s airfreight volumes for 2011, while there will be 3.1% growth in road freight and 4.4% in rail freight.

7) Mexico
Following a year of recovery in 2010, in which many freight operators went back to profits, Mexico is seen as offering solid growth prospects in general. In particular, there was a strong performance from the country’s airfreight sector, with 20.5% growth in the amount of air cargo handled. Mexico's port sector also benefited from the 2010 upturn in the country's trade volumes, with estimated growth of 18.2% at the Port of Manzanillo last year. As a result of this growth, several multinationals increased their services into Mexico during the last quarter, which suggests that some businesses are taking a long-term view that Mexico is the gateway into the new emerging economies of Latin America. However, Business Monitor International (BMI) believes the US economy will falter in 2011 and this will cause a slowdown in Mexico, which will impact on investor confidence. Also, a trucking dispute with the US is still unresolved and threatens greater damage to trade and relations between the two countries. The other major threat is political risk at home and the possibility of the Mexican government becoming deadlocked in congress due to the strengthened PRI opposition party. This could affect investor sentiment and delay new freight projects.

6) Saudi Arabia
The highest climber in this year’s top ten, and the highest ranked country from the Middle East, Saudi Arabia has jumped from the tenth position last year to the sixth position in 2011. According to Transport Intelligence, it was Saudi Arabia’s success at boosting its energy, industrial, real estate and financial sectors that resulted in strong foreign director investment (FDI) during the economic crisis. The kingdom is also developing six ‘economic cities’ to replicate the success of Dubai. The largest of these will be the King Abdullah Economic City, which comprises of six key components – a seaport, an industrial zone, a central business district, a resort district, an educational zone and residential communities. Once completed the economic city will be a hub for at least 2700 manufacturing companies and the 13.8 square kilometre port is estimated to emerge as one of the world’s top five largest industrial ports. This will prepare the kingdom for the growth of its logistics industry, with predictions by Frost & Sullivan that the market will earn revenues of US$20.54 billion in 2015, compared to $13.78 billion in 2010. However, to achieve this growth, more investment will be needed to ease traffic congestion on the national and international highways. The current road network in Saudi Arabia, particularly at international borders with the United Arab Emirates, Yemen, and Oman, has posed capacity issues, resulting in long waits for load carriers. Moreover, due to the restrictions on international traffic between Saudi Arabia and other countries, the road network between commercial areas is often circuitous, which, in turn, raises the transportation costs.

5) Russia
Russia has managed to climb one position in this year’s ranking and make its debut in the top five. According to Transport Intelligence, this increase was driven by improvements in the country’s GDP forecast growth, improved foreign direct investment, and reductions in security threats. A recent report by Business Monitor International (BMI) has suggested an impressive 25.3% growth in Russia’s road freight last year, which followed a decline of 24% in 2009. As living standards in the country improve and a wealthier, more consumer-orientated society is created, this demand for road freight will only increase. However, its potential is held back by the lack of a comprehensive, modern road network across the country. BMI also found that rail freight – the backbone of Russia’s bulk transport system – increased by 16% last year, while shipping volumes fell by 1.5% at Novorossiysk, the country’s main commercial port, following growth of 6% the previous year.

4) Indonesia
Indonesia’s logistics industry was found to have around the same level of attractiveness for investors as Brazil, so the country almost secured a position in the top three of this year’s list. Still, being ranked at number four on the basis of its growing economy and market size is not a small achievement. According to Transport Intelligence, the connectivity of Indonesia to global trade lanes had captured the attention of foreign investors, even with concerns about security. Its total trade in real terms grew by 16% last year after a contraction of 12% in 2009. In particular, trade between China and Southeast Asia grew rapidly after the enactment of a free trade agreement between China and the founding members of the Association of Southeast Asia Nations. Further trade liberalisation with China is likely in the medium term, which will have a positive impact on the business of logistics companies. For example, DHL has expanded its LCL services to South Asia with a number of new services to US, Europe and New Zealand, while Tri-MG is planning to operate 20 weekly scheduled 732-200 freighter flights between Singapore and Indonesia, and even Garuda Indonesia has re-established its foothold in the European air cargo market after previously being banned on safety issues.

3) Brazil
Maintaining its position in the top three this year, Brazil’s logistics industry is still relatively young in terms of service and development, but has started to rapidly develop on the back of resurgence in the country’s economy, together with the sophistication that has been brought by multinational providers. This, in turn, has resulted in a greater realisation by manufacturers and retailers of the benefits of outsourcing logistics activities. Estimates suggest that airfreight volumes increased by 7.6% last year, while there was double-digit growth in seafreight volumes. However, the country’s biggest hurdle at the moment is a lack of world-class infrastructure to transport the cargo, especially in terms of airport developments.

2) India
The massive growth potential of India’s logistics industry has been hailed for a number of years now, so there is little surprise that the country has followed China in this year’s list. According to recent trade reports, the market for third party logistics in India will reach around US$4.6 billion by 2013, growing at a CAGR of roughly 26% over the next couple of years. This will predominantly be fuelled by multinational companies in the automotive and IT industries, amongst others, although more and more of the country’s big domestic companies have also started to outsource their basic supply chain operations. This has attracted a string of global heavyweights, with news that FedEx has recently taken over the logistics, distribution and express businesses of Indian group AFL and its affiliate Unifreight India, while there is speculation that TNT Express wants to purchase a major stake in Hyderabad-based Gati.

1) China
As the largest economy in this year’s ranking, China has retained its number one position as the world’s most attractive investment market for logistics companies. According to Transport Intelligence, there were a number of contributing factors in this decision, including China’s unrivalled connectivity to global shipping networks, which is amongst the best in the world and offers access to high capacity and frequency ocean freight. In addition to fuelling trade, this connectivity has also resulted in consistent growth for the country’s logistics industry over the years. Moreover, with increasing support from the government in the form of infrastructure investment and growing trade practices, the value of China’s logistics industry is expected to reach a staggering US$20.9 trillion by the end of 2013, growing at a CAGR of approximately 9% over the next couple of years. At present, the concept of logistics services in China is mainly confined to transportation services, while operations such as warehousing and distribution management are traditionally being handled in-house. However, these have been recent signs of change, with the growing popularity of outsourced logistics being fuelled by strong demand for high-tech facilities, especially in terms of ‘green’ operations.

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