Opinion: Logistics companies should question China’s future

The past couple of weeks have seen a steady stream of news stories detailing investment in China by the leading logistics service providers.

TNT, DHL, CEVA and many others have been stretching their presence into the West of China whilst Maersk has been attempting to restructure the container shipping industry based around a new high-intensity Asia-Europe service utilising high capacity vessels.

All of this is an attempt to exploit in one way or another, the ‚China growth story‘. This picture of never ending expansion appears to have become an assumption in strategic planning of major LSPs. Perhaps now might be the right time to question it.

The economists Charles Dumas and Diana Choyleva from the London analysis house Lombard Street Research have just published a book, "The American Phoenix", which predicts a severe recession in the US in 2012, followed by growth caused by a leap in competitiveness, especially as compared to China.

The US is in the grip of violent deflation driven by the ‚deleveraging‘ of the private sector and pressure to reduce the budget deficit. However in the medium-term, the benefit of this will be lower costs, not least in terms of the oil price, facilitating a recovery. Germany will also suffer as its export markets falter and its domestic economy refuses to consume.

A core problem is the conflicting monetary policy of the US and China. Whilst the US authorities have loosened monetary policy to the extreme in order to stave-off deflation, the Chinese are faced with an economy apparently growing at an incredible rate. The problem of the Chinese economy is that its government has chosen to maintain a currency peg with, amongst others, the US Dollar. The result is inappropriate monetary conditions in China driving inflation and undercutting the cost competitiveness of Chinese production. Of course this might be mitigated by China becoming a major consumer of its own and other countries‘ production. However, this will require a complete restructuring of the Chinese economy.

The analysis of Dumas and Choyleva is not unique nor, as is the way of economist predictions, is it certain to come to pass. However, the contradictions in world trade are substantial and this asks big questions of many major LSPs‘ strategies. Are their assumptions of the continuing pattern of trade rooted in unsustainable economics? Are those who are betting on continuing Chinese growth about to be disappointed whilst the LSPs exposed to US exports experience a boom? After all as the banking sector illustrated, it would not be first time that what appeared to be a certainty proved to be disastrously uncertain.

Quelle: eyefortransport
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