All change for globalisation

Strategy shift: ever-larger ships are not the answer. Credit: JAXPORT Strategy shift: ever-larger ships are not the answer. Credit: JAXPORT

COMMENT: Globalisation is evolving and the change may well mean the end of the concept as we know it, writes Ben Hackett.

Globalisation in its simplest definition is the process increased global interconnectivity as a result of increased trade in goods and services. Globalisation has certainly increased global trade.

It was driven by the desire to reduce cost of production and ultimately prices from the late 1990s. International companies found an easy way to reduce labour costs by shifting production to China and Southeast Asia by Foreign Direct Investments, particularly in China. This was aided by China joining the World Trade Organisation (WTO) and made physically possible by massive investments in the increasing supply of ever-larger containerships by the major global carriers.

Looking back on the last twenty years one can draw the conclusion that the main beneficiaries have been China, global multinational companies and consumers. Carriers on the whole suffered as a result of losing sight of the need for equilibrium in supply and demand to make money.

Today’s world is shifting away from globalisation in a number of ways. The European Union, despite all its hurrah about being a global trader, is focused on maximising intra-EU trade. The US under the leadership of President Trump is slowly but surely turning its back on the world with its “America First” policy. We have also seen a return to production of goods closer to the consumer, aided in Europe by the expansion of the EU to include cheap labour in Eastern Europe.

The biggest threat, however, to globalisation is the dramatic growth of robotics. Exponentially expanding the use of machines to replace human labour will have a major impact on international trade. As this continues, the original logic of shifting production to low cost countries is no longer valid. Robotic production in the US and the EU no longer has high labour costs as a major factor in the price of production. With inward looking policies in both regions we can expect production of goods for the domestic market to return with the added benefit of reduced transportation costs.

As a result, current shipping overcapacity will not get better going forward; that can only be wishful thinking. Shipping line strategies needs to change dramatically if the current group of companies wish to survive the second generation management.

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