Agility’s Emerging Markets Logistics Index reveals that in the shadow of COVID and against a backdrop of international conflict, trade wars and intensifying climate change, a return to ‘business as usual’ in the logistics space is unlikely.
Indeed, with the possibility of a global recession rearing its head, ongoing trade fragmentation, and a complex geopolitical landscape, the report suggests global logistics could be in for a rough ride ahead.
However, opportunities arising in alternative markets and increased resilience from shorter logistics systems were also highlighted.
Likewise, the Index, now in its 15th edition, highlighted Saudi Arabia and the UAE, in particular, as rising stars on the innovation, sustainability, and investment fronts.
ESG Mena breaks down the key insights and explores what the landscape looks like ahead.
The data breakdown
Agility’s survey of 830 logistics industry executives and Index, compiled in collaboration with Transport Intelligence (Ti), provides a snapshot of industry sentiment and a ranking of the world’s fifty leading emerging markets.
Organised around four key areas for logistics market development: Domestic Logistics Opportunities, International Logistics Opportunities, Business Fundamentals, and Digital Readiness, the data reveals an increasingly complex situation for emerging logistics markets alongside burgeoning opportunities.
For example, while China, India, and UAE were placed at the top in the overall ranking, Vietnam made it into the top ten as a result of new world trade patterns and infrastructure improvements.
Meanwhile, Kazakhstan and Cambodia rose in digital readiness due to improvements in:
-Network readiness,
-Technical skills, and
-The startup environment.
Despite the ongoing Russia-Ukraine war, Ukraine was also highlighted for a partial rebound in the Index.
Mariam Al Foudery, Group Chief Marketing Officer at Agility, also noted that the path ahead looks positive across Africa: “When we were surveying logistics executives, never in the 15 years of the index have they been more positive about the future and prospects of Africa as they are this year, which I think is also a reflection of the fact that trade patterns are changing.”
Adding: “They’re a reflection of the fact that there are resources that are coming from the African continent that are extremely valuable and important to global supply chains, and that by 2051, one in four people in the world will be from the continent of Africa.”
Big opportunities for Middle Eastern countries
Further, when looking at the Middle East, the Index highlighted big opportunities.
For example, the UAE and Saudi Arabia were noted as looking to build their position as hub locations for countries in Southeast Asia, India, and parts of Africa and Europe.
In a media briefing, John Manners-Bell, CEO, Transport Intelligence, explained that the Middle East will benefit from ‘China plus’ optionalisation sourcing strategies on two levels.
“Firstly, I believe as a hub for serving other manufacturing locations around the Middle East itself, and secondly as a source, because there are a lot of very energy-intensive industries looking at the Middle East, because of the low cost of energy. Particularly European companies are looking at offshoring parts of their business into the Middle East to take advantage of those low costs,” he said.
Manners-Bell noted that Saudi Arabia, specifically, will benefit here.
Indeed, in the report, Saudi Arabia ranked in the top ten across all indices and sub-indices, positioned as:
-Sixth overall
-Sixth on digital readiness,
-Sixth in terms of international logistics opportunities,
-Third in terms of business fundamentals, and
-Seventh in terms of domestic logistics opportunities.
The Kingdom was also highlighted by executives as having made the most progress in diversifying its economy (30.1 per cent) compared to other GCC countries, such as UAE (26.7 per cent) and Qatar (21.8 per cent).
The Red Sea situation & mitigation strategies
On the ongoing Red Sea situation, Manners-Bell said that while there is unlikely to be a significant impact over the next few months, this could change in the coming years.
“There will be changes, which will impact on, for example, Saudi’s investment in Red Sea ports, even with NEOM,” he said. “But I think on the whole the region is very strong in terms of its resilience, and the mitigation strategies which have been put in place already – we’re seeing the Saudis looking at a land bridge, which will mean that the Red Sea can be bypassed, and I think we’ll see far more sea-air solutions.”
Manners-Bell noted that if the situation continues, there will be a “period of adjustment to the new reality.”
“I think we’ve seen in the past that countries in the region can be very flexible in order to put in place new solutions,” he said.
Sustainability approaches and policies under the microscope
Amid increased regulatory scrutiny around ESG and sustainability in the West, the report notes concern from emerging markets that this could drive businesses to reduce investments in Africa, Latin America and Asia.
Concerns were also raised around the European Union’s Carbon Border Adjustment Mechanism (CBAM) and the Emissions Trading Scheme (ETS), and their potential to harm trade with countries by levying a border tax and making international transport more expensive.
It also outlined that in some cases, ‘the perfect is the enemy of the good,’ giving the example of Norway’s blockage of further investment in emerging markets by its sovereign wealth fund in 2021, partly due to concerns over ESG risks.
However, Manners-Bell suggested that when it comes to supply chains, some of this hesitancy isn’t entirely unwarranted, highlighting the environmental risks associated with diversification.
For example, while China is quite advanced in its environmental governance, moving production to other countries, for example, those across Southeast Asia, where there isn’t the same level of regulation could result in environmental impacts due to increased production in those countries, he explained.
The Middle East and the climate challenge
When it comes to the MEA region, the report noted that “radically divergent” approaches are being taken to the climate challenge.
Al Foudery told ESG Mena that, in the Middle East, the UAE and Saudi Arabia are “taking the lead” on sustainability initiatives, both from a policy and business perspective.
Here, she highlighted investment in green buildings, electrification, green fleets, and the energy transition.
“Today, the renewable space in the GCC is still quite small. It’s under 3 per cent of the energy mix, but you’re seeing investments that will accelerate that energy transition in the region.”
Al Foudery noted Saudi Arabia’s announcement of the world’s largest green hydrogen plant, the world’s largest solar power plant, and the UAE’s investment in clean energy technologies.
However, more broadly, Manners-Bell said that when looking at the data, the three most common sustainability initiatives companies plan to undertake in 2024 in emerging markets are what he called “easier initiatives.”
“It’s quite interesting that some of the easier initiatives are the ones at the top, such as reducing energy use, for example, [while] at the bottom is the use of alternative fuels.”
“It will be those very big investments on a country and governmental level which will enable the building of alternative fuel networks, whether those are hydrogen or electric, before some of the really big goals are achieved. And that really needs a lot of political impetus to get to grips with some of these bigger environmental challenges,” he said.
Adding: “There’s going to have to be a lot more resources put into play if we’re going to achieve some of the bigger goals.”
Lack of preparedness for climate change effects
Indeed, while we are beginning to see movement from businesses on sustainability strategies and initiatives, when it comes to preparing for the impacts of climate change, businesses are lagging.
In the report, climate change events were highlighted as affecting 20.5 per cent of organisations, with 45.2 per cent noting it as a concern businesses should plan for.
Yet, more than a quarter of supply chain executives don’t have a plan in place to address the risks and disruptions it causes.
These findings echo those of Agility’s Middle East and Africa Environmental Sustainability Scorecard, released in November.
Indeed, the scorecard revealed that despite 97 per cent of businesses being affected and 49 per cent citing that climate change has caused “severe damage” or has a “significant and growing” impact on them, businesses regionally are playing catch up, and the gap between awareness and action needs to close more quickly.
Reflecting on the data revealed from research, Manners-Bell said: “Supply chain managers are still coming to terms with the political and economic instability characterising the post-COVID global economy. Geopolitical relationships are changing rapidly, and this is having a major impact on international trade and risk profiles. Businesses need to be alive to the opportunities and threats that exist in emerging markets and use data, such as that of the Agility Emerging Market Logistics Index, to inform agile decision-making.”
By Madaline Dunn, Lead Journalist, ESG Mena.