Over the next decade, 20 markets worldwide — including China’s Beijing, Hangzhou, Nanjing, Suzhou and South Korea’s Busan — are set to emerge as global logistics hubs, according to a new report from CBRE. These emerging locations share a number of characteristics, including significant investments in infrastructure, new trade policies and agreements, and more advanced supply chains and technologies.
Over the past 35 years, global trade has increased by nearly 600 per cent, spurring the development of wider, more complex supply chains worldwide. To support this growth, logistics hubs connecting multiple transport modes have been established in virtually every country.
“The core of this international trade is the flow of goods through supply chains that connect raw materials, production and delivery to consumers worldwide. Infrastructure, accessibility, market size and business environment are all integral factors to ensuring efficient supply chain flow,” said Richard Barkham, global chief economist, CBRE. “Logistics hubs are the main driving force behind the industrial real estate markets and are at the center of large clusters of distribution facilities.”
Infrastructure investments
Physical improvements to regional transportation infrastructure can increase the viability of a location for substantial international trade. A prime example of this is the Silk Road in Asia—the oldest overland trade route stretching from China to Central Asia, and then to Europe’s border. In 2013, China launched a new strategic initiative, known as ‘one belt, one road,’ which aimed to revive the importance of the Silk Road trade route. The new Silk Road has two parts: The Silk Road Economic Belt, a land-based route that will connect central China to the Middle East and Eastern Europe, and the Maritime Silk Road, a sea-based path that will link South China to Southeast Asia, East Africa and Europe. These two strategic routes may shift global supply chain dynamics and result in the creation of new and important logistics hubs along the routes.
Trade policies
“As governments continue to draft new trade agreements and amend labor laws, new trade routes are becoming more accessible and more integrally connected with existing strategic routes,” said Henry Chin, head of research, CBRE Asia Pacific. “The Trans-Pacific Partnership (TPP) is a potential trade agreement that will have drastic effects on global trade routes and manufacturing demand in Asia.”
The comprehensive trade agreement covering 12 countries in the Pacific Rim—Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the US and Vietnam—seeks to lower trade tariffs, streamline cross-border regulations and increase market access between the member countries for a wide range of products and issues such as manufacturing, telecommunications and agriculture.
“With increased market access and lower trade barriers, the amount of goods moving through this trading bloc is likely to increase. For example, as manufacturing demand shifts to Southeast Asia, local ports in Vietnam may experience increased port calls, and regional hubs in Malaysia may grow in prominence. Stronger demand for agricultural land and logistics facilities, with the projected increased output of agricultural products from Australia and New Zealand, is also expected,” said Dr Chin.
Demographics
As living standards around the world continue to rise, new markets and customer segments are opening to global suppliers. Rapid population and economic growth around the world, especially in emerging Asia markets, has altered the shape of consumption and the distribution networks in place to serve these populations. The most notable transformation of the past few decades has been the rise of the middle class in the emerging markets; the major driving force behind this growth is in Asia, where the middle class is expected to grow six-fold, from 525 million in 2009 to 3.3 billion in 2030.
Supply chain trends
Larger trends in the global supply chain can shape the emergence of global hubs. In Asia, low-end manufacturing—such as garment and textiles production and electronics component assembly—has steadily been moving from Southern China to Western China and Southeast Asia. Southern China, encompassing the Pearl River Delta, has traditionally been the light industrial manufacturing center of the world, however, as wages continue to rise and China attempts to move up the manufacturing value chain, there has been a shift to more sophisticated heavy industry manufacturing. Elsewhere, Vietnam has been the major benefactor of the change in manufacturing mix due to its low wages, strategic location to China, improving infrastructure and business-friendly political environment, such as the relaxation of regulations on foreign direct investment.
Technological advancements
“E-commerce continues to be one of the main driving factors for modern logistics developments and networks across the region. With a trickle-down effect to inventory management, this leads to changes in the global supply chain network,” said Dennis Yeo, regional head, Industrial & Logistics Services, CBRE Asia. “Speed-to-market is more important than ever. The service demands brought about by e-commerce—for example, shorter delivery times to consumers—has changed the entire retail supply chain of getting goods to consumers, including regional distribution strategies. The technical ability of locations and buildings to support the ever-increasing demands for both scale and speed of output is an ever-more important determinant of market position.”
In Asia, the e-commerce and e-tailing market has been particularly strong, with e-commerce upending the traditional brick-and-mortar distribution networks, forcing retailers and third-party logistics firms to adapt to an increasingly demanding consumer.
“E-commerce shipments are smaller in size and require more technology and expertise to execute efficiently. As a result, modern logistics facilities are being developed in the traditionally strong logistics hubs of Tokyo, Seoul and Taipei. Besides the developed markets, the new consumer class in the emerging markets is creating opportunities for logistics development in markets such as in China, India and Vietnam,” adds Yeo.
