Why globalisation will yield to regional fiefdoms

by Dave

Times Online

Within the world of logistics, the signals that moderate traffic from Asia are turning amber and, in some cases, red. DHL, the air freight and logistics operator, is hearing a new message from its Asian customers: where manufacturers were once concerned only about speed and efficient transport from Shanghai and Shenzhen to Los Angeles, London and Frankfurt, the present priority is proximity to markets.

According to Scott Price, chief executive of DHL in Europe, the global supply chain is in turmoil. Where manufacturers previously would think nothing of shipping finished goods from China to the United States and Europe, they are now looking for shorter supply chains. DHL is faced with upheaval as its clients rip apart a logistics and supply chain crafted over the past decade that was based on low-cost transport.

Mr Price reckons that the world is moving from globalisation to regionalisation. In a recent business review with high-tech companies, the customers said that rather than supply out of Asia, they were looking at assembly in Europe.

For DHL, that means less intercontinental freight as companies change the way in which they do business. It means product assembly close to consumer markets and the need to create new logistics hubs. According to Mr Price, the largest air freight lane last year was from China to Mexico: “Four to five years ago, nobody would have questioned their assumptions about oil. Now the price of oil forms the basis of big decisions about where to locate a factory.

If the oil price does collapse, it will be a short-lived respite before a renewed and more vicious upward spiral. We are moving to a world of greater protectionism, where resources are jealously guarded. It will be a world where the cost of materials and fuel is no longer taken for granted and forms as large a part of strategic planning as the cost of labour.

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