It is no longer just FedEx's Fred Smith who thinks that "we have probably hit the bottom" of the current global economic downturn (Ti Logistics Briefing, Briefing, March 20).

This weekend saw Dominique Strauss-Kahn, head of the IMF (International Monetary Fund), commenting that the world's major governments had probably done enough for this year to avoid a slump, if not a recession. So it would seem that now is the time to consider what the global economic recovery will look like when it eventually materializes.

The first thing to note is that the economic crash has had the characteristic of not merely a cyclical downturn but of a restructuring of the world's economy--and particularly of its trading system. The high level of private consumption in the US, in particular, had driven economic growth across the world, amplified by the ability of global supply chains to deliver increasingly cheap products. However, western consumers over-reached themselves and are now aggressively retrenching. The future will not resemble the past.

A key question is what role China will play in a restructured world economy. China's economy is at least still growing. Chinese exports have fallen heavily but the economy is being driven by a huge government stimulus package. Whilst the beginning of year saw the economy growing at an annualized rate of around 6%, some optimistic forecasts, such as one from Goldman Sachs, assert that will rise to 8%.

Central to such optimism is the expectation of an expansion in consumer spending in China. Retail spending has displayed some robustness, with February and March showing percentage growth in the mid-teens, but so far it is government-funded infrastructure spending, combined with loose bank lending, that has been the real counter-balance to falling exports. A good example of that is the huge growth of investment in the railways, which, according to Chinese government sources, has grown by 200% over the past 12 months. Investments of such size led Ron Widdows, president and CEO of global container shipping group Neptune Orient Lines (NOL), to state that "China will pave over its interior".

Such infrastructure spending must be good for bulk shipping. The huge quantities of raw materials such as steel and energy needed to create such facilities will be huge. Yet there is also another effect. Much of that infrastructure is transport-related and is designed to improve access to the west of china. If those plans work, they will open up access to huge new pools of labor.

What does that mean for the world's logistics sector? The implications for the sea and airfreight sector are likely to be huge. The China trade came to dominate global container shipping, in particular, and in a reflection of the macro-economic context, was hugely over-balanced towards the export of consumer goods from China to the US. That pattern of trade proved to be unsustainable and is surely unlikely to return.

However, in its place will be a more complex market that will include the development of deeper service provision in regions such as China, combined with the expansion of the sort of retail logistics already familiar in the west. Although the potential productive base of China will continue to grow, its competitiveness may be threatened by an increase in the value of the renimbi. Trade patterns may therefore fragment, with more production returning to western countries and those low cost locations neighboring them, notably Central and Eastern Europe. There again, the demand for logistics services will evolve into deeper but also more flexible capabilities.

There will be winners and losers in that process. Some focused logistics operations with a presence in specific regions will continue to benefit. However, it is ironic that the big global logistics service providers with diversified logistics capabilities will have the flexibility and the reach to serve those new markets. Ironic because it was the same logistics service providers who benefited so much from the China boom.
Transport Intelligence