Executive Briefings

Despite Recovery, There's No Going Back to the Good Old Days

The global economy appears to be on the mend, although I hesitate to use the word "recovery" because it implies a return to a previous state of affairs. What's more likely is that the world in the post-recession era will look significantly different in some fundamental ways.

One area where change is inevitable is the pattern of trade flows. Western industrial economies have become accustomed to dominating global commerce, and while not in danger of being eclipsed by emerging nations, they will account for a lesser share of the action in years to come. PricewaterhouseCoopers, in a recent report entitled Transportation & Logistics 2030, sees the emergence of new "logistics passageways" between Asia and Africa, Asia and South America, and within Asia. "The expected relative weight of the flow of goods between the continents will shift considerably," the report says.

China in particular is changing the rules of the game. It has moved aggressively to lock up production rights for raw materials in Africa, notes Thorsten Blecker, professor at the Technical University of Hamburg-Harburg. Brazil, India and Egypt are also becoming major players in that trade, while Europe's role has been relatively small, he said at the Transport Logistic show in Munich, Germany. (One might even call that a refreshing trend, considering Europe's long history of pillaging Africa for gold, rubber and other essential materials.)

Ocean and air carriers will adjust their services accordingly. Europe's shrinking birthrate will be offset by a continuing population boom in developing nations, altering global demographics and the flow of consumer goods, Blecker said. More intra-Asia services are the likely result.

The same trend can be detected in forecasts for global energy consumption. Member nations of the Organization for Economic Cooperation and Development (OECD), consisting mostly of the U.S., Western Europe and Japan, have been the biggest consumers of oil and other energy sources by far. But emerging economies are catching up fast. Non-OECD countries are expected to boost their energy consumption by 68 percent by 2030, versus only 6 percent within the OECD, according to Jeffrey A. Foshee, vice president of Aromatics Americas within the North American Rail Division of BP America, Inc. In fact, "the distinctions between OECD and non-OECD [countries] will not exist in 2030," he said at last month's annual meeting of the North American Rail Shippers Association in San Francisco.

Don't expect the global decline in energy use seen in 2009 to set a pattern for the years ahead. Nations of all sizes and stages of development will be consuming more of it than ever. As Foshee pointed out, world population has grown more in the last 60 years than in the previous 100,000. Now at around 6.2 billion, the figure is expected to reach between 7.5 and 10.5 billion by 2050.

Traditional energy sources can't fuel all of that growth. Energy analysts estimate that the world has about 40 years' worth of oil reserves at current production levels, and 65 years of natural gas. Alternatives must be found. Until the tsunami-caused disaster at Japan's Fukushima Daiichi Nuclear Power Plant, many thought the answer was nuclear power. Now that option has fallen into disfavor. Germany recently announced that it would shut down all of its nuclear plants by 2022. It aims to boost the contribution of wind, solar and hydroelectric power from the current level of 17 percent to 50 percent in the years ahead. Coal production, meanwhile, is up sharply around the world, but it gives rise to serious questions of environmental impact.

Foshee predicts a stepped-up reliance on biofuels, even though options such as ethanol don't come close to replacing a fraction of the 19 million barrels of oil consumed each day in the U.S. Moreover, using current technology, ethanol still takes more energy to produce and deliver than it generates, according to some scientists.

Even so, expect a marked shift in the use of various types of energy in the coming years. Oil will steadily lose market share, falling behind coal by 2030. Natural gas production will rise as well. Unconventional methods, such as the extraction of gas from shale and coal, and oil from sand, will be stepped up, despite their high cost.

At the same time, the search for renewable sources of energy will accelerate. Twenty years from now, Foshee said, the combined contribution of non-fossil fuels will exceed that of any single fossil fuel. The number for biofuels will rise from 3 percent to 9 percent, mostly at the expense of oil.

All of this assumes, of course, that we really are in sustained recovery. Eric Starks, present of logistics consultancy FTR Associates, places the likelihood at 80 percent. That 20 percent of doubt is based on several troubling possibilities, including the price of oil topping $120 per barrel for a sustained period; a return of inflation, triggered by rapidly rising commodity prices; the U.S. federal budget deficit, and the growing debt crisis in Greece and other European countries.

On the positive side, several key indicators, including the ISM Manufacturing Index and Chicago Federal National Activity Index are showing reasonably good results. And the U.S. unemployment rate appears to have peaked, with nearly 250,000 jobs added in April. (Put that in perspective with the estimated 8 million jobs lost during the recession. It's going to be a long road back.)

In the end, we can't rely on numbers. All we know for certain is that the dynamics of global trade and transportation are rapidly changing, and supply chains must change, too. The word "recovery" doesn't even begin to describe the challenge.

- Robert J. Bowman, SupplyChainBrain

Comment on This Article

The global economy appears to be on the mend, although I hesitate to use the word "recovery" because it implies a return to a previous state of affairs. What's more likely is that the world in the post-recession era will look significantly different in some fundamental ways.

One area where change is inevitable is the pattern of trade flows. Western industrial economies have become accustomed to dominating global commerce, and while not in danger of being eclipsed by emerging nations, they will account for a lesser share of the action in years to come. PricewaterhouseCoopers, in a recent report entitled Transportation & Logistics 2030, sees the emergence of new "logistics passageways" between Asia and Africa, Asia and South America, and within Asia. "The expected relative weight of the flow of goods between the continents will shift considerably," the report says.

China in particular is changing the rules of the game. It has moved aggressively to lock up production rights for raw materials in Africa, notes Thorsten Blecker, professor at the Technical University of Hamburg-Harburg. Brazil, India and Egypt are also becoming major players in that trade, while Europe's role has been relatively small, he said at the Transport Logistic show in Munich, Germany. (One might even call that a refreshing trend, considering Europe's long history of pillaging Africa for gold, rubber and other essential materials.)

Ocean and air carriers will adjust their services accordingly. Europe's shrinking birthrate will be offset by a continuing population boom in developing nations, altering global demographics and the flow of consumer goods, Blecker said. More intra-Asia services are the likely result.

The same trend can be detected in forecasts for global energy consumption. Member nations of the Organization for Economic Cooperation and Development (OECD), consisting mostly of the U.S., Western Europe and Japan, have been the biggest consumers of oil and other energy sources by far. But emerging economies are catching up fast. Non-OECD countries are expected to boost their energy consumption by 68 percent by 2030, versus only 6 percent within the OECD, according to Jeffrey A. Foshee, vice president of Aromatics Americas within the North American Rail Division of BP America, Inc. In fact, "the distinctions between OECD and non-OECD [countries] will not exist in 2030," he said at last month's annual meeting of the North American Rail Shippers Association in San Francisco.

Don't expect the global decline in energy use seen in 2009 to set a pattern for the years ahead. Nations of all sizes and stages of development will be consuming more of it than ever. As Foshee pointed out, world population has grown more in the last 60 years than in the previous 100,000. Now at around 6.2 billion, the figure is expected to reach between 7.5 and 10.5 billion by 2050.

Traditional energy sources can't fuel all of that growth. Energy analysts estimate that the world has about 40 years' worth of oil reserves at current production levels, and 65 years of natural gas. Alternatives must be found. Until the tsunami-caused disaster at Japan's Fukushima Daiichi Nuclear Power Plant, many thought the answer was nuclear power. Now that option has fallen into disfavor. Germany recently announced that it would shut down all of its nuclear plants by 2022. It aims to boost the contribution of wind, solar and hydroelectric power from the current level of 17 percent to 50 percent in the years ahead. Coal production, meanwhile, is up sharply around the world, but it gives rise to serious questions of environmental impact.

Foshee predicts a stepped-up reliance on biofuels, even though options such as ethanol don't come close to replacing a fraction of the 19 million barrels of oil consumed each day in the U.S. Moreover, using current technology, ethanol still takes more energy to produce and deliver than it generates, according to some scientists.

Even so, expect a marked shift in the use of various types of energy in the coming years. Oil will steadily lose market share, falling behind coal by 2030. Natural gas production will rise as well. Unconventional methods, such as the extraction of gas from shale and coal, and oil from sand, will be stepped up, despite their high cost.

At the same time, the search for renewable sources of energy will accelerate. Twenty years from now, Foshee said, the combined contribution of non-fossil fuels will exceed that of any single fossil fuel. The number for biofuels will rise from 3 percent to 9 percent, mostly at the expense of oil.

All of this assumes, of course, that we really are in sustained recovery. Eric Starks, present of logistics consultancy FTR Associates, places the likelihood at 80 percent. That 20 percent of doubt is based on several troubling possibilities, including the price of oil topping $120 per barrel for a sustained period; a return of inflation, triggered by rapidly rising commodity prices; the U.S. federal budget deficit, and the growing debt crisis in Greece and other European countries.

On the positive side, several key indicators, including the ISM Manufacturing Index and Chicago Federal National Activity Index are showing reasonably good results. And the U.S. unemployment rate appears to have peaked, with nearly 250,000 jobs added in April. (Put that in perspective with the estimated 8 million jobs lost during the recession. It's going to be a long road back.)

In the end, we can't rely on numbers. All we know for certain is that the dynamics of global trade and transportation are rapidly changing, and supply chains must change, too. The word "recovery" doesn't even begin to describe the challenge.

- Robert J. Bowman, SupplyChainBrain

Comment on This Article