Spending on trade facilitation needs to focus on megacities.
As corporations have built giant global supply chains around the world, governments have done their share, reducing tariffs and other trade barriers impeding market access of goods and services. Although the implementation of the WTO’s historic Trade Facilitation Agreement (TFA) will significantly help undo bottlenecks at national borders — promising to free up more than $1 trillion in global GDP — a growing challenge in the movement of trade remains: cities.
Trade is boon for economic growth and development, but many obstacles complicate moving trade, adding to costs and dampening its benefits. In Latin America, importers of products spend 190 hours in border procedures and handling paperwork costing $793 per shipment, according to the World Bank’s 2016 Doing Business index, as opposed to 36 hours and $257 in the logistics wunderkind Singapore.
World Economic Forum research shows that if every country improved border administration and transport and communications infrastructure even halfway to Singapore’s level, world trade would increase by 15 percent and world GDP increase by 5 percent.
The TFA does help unlock these gains. However, it won’t help where trade now flows: cities. As the world urbanizes — in 2030, the world’s top 750 cities will make up 61 percent of global economic activity, up from 57 percent today — and as door-to-delivery ecommerce expands, trade facilitation will need to move to cities.
Already, urban congestions costs billions. According to Texas A&M’s renowned urban mobility scorecard, the congestion “invoice” for the cost of time and fuel in American cities was 6.9 billion hours and 3.1 billion gallons of fuel in 2014, for a total cost of $160 billion — four times 1982 figure. Trucks accounted for $28 billion of the cost, not including any value for the goods being transported.
The problem spans the globe. In the TomTom index of urban logistics, Istanbul, Mexico City, Rio, and Moscow are most congested; 10 of 30 worst congested urban areas area in China.
Congestion is increasing last-mile delivery charges — to the point where the fixed cost of shipping a low-value shipment absorbs all foreseeable profits, risking to freeze trade in smaller shipments, whether by microentrepreneurs or ecommerce giants like Nike. As megacities become key nodes in global supply chains, importing raw materials and inputs and exporting final products, congestion also hurts cities’ economic competitiveness and appeal to foreign direct investors.
Business-to-consumer (B2C) ecommerce, which makes up only a tenth of global ecommerce, is expected to increase more than four-fold to $1 trillion in 2020. China will lead much of the trend, becoming the largest cross-border B2C market by 2020, with $245 billion in ecommerce imports. In India, ecommerce is expected to rise 15-fold by 2030.
One solution is to get next to the end consumer — Amazon, Walmart and other retailers and property developers are building large-scale, highly efficient warehouses near urban centers in China, India, the U.S. and Europe. However, last-mile delivery will still need to get done. The cheapest alternative, emerging market postal systems, are neither reliable nor fast..
The 2015 Global City Teams Challenge Expo shows that cities around the world are getting smarter — using new technologies to improve transport, healthcare, education, disaster management, and so on. But very little attention is paid to the movement of exports and imports through cities. Now is the time: cities are where the rubber is hitting the road for trade facilitation.
Ensuring that trade of the future flows not only across borders, but also through cities, requires a set of solutions:
- The international trade community has a great opportunity to partner with urban economists to decongest cities for world commerce. Multilateral development banks’ lending strategies to facilitate trade have long focused on modernizing customs and upgrading road, air, port and rail infrastructures. The next frontier of these investments is cities.
- Trade facilitation experts and city planners should encourage 3D printing as the premier decongester and decarbonizer. 3D printing will enable congested cities overcome the physical constraints to the movement of goods. Everything from industrial parts to toys, clothes and food can now arrive to the buyer, as designs in the cloud are printed right on site, with no physical movement taking place.
- Smart city analytics should be applied to address the urban logistics challenge. Innovative companies can use Big Data analytics to rationalize deliveries; intelligent traffic systems can direct flows; new types of vehicles (nimble and green) and shared delivery services (Uber delivery) can be used for urban freight. To connect all key players, cities can draw on the example of the Port of Hamburg, where Internet of Things applications enable the coordination of every aspect — ships, port authority, trucks, drawbridges, etc. —to efficiently move 9 billion containers annually.
As the world digitizes and urbanizes, facilitating trade requires entirely new approaches. For the international trade community to fuel corporate supply chains and unlock opportunities for small businesses to engage in ecommerce, trade facilitation in cities must get to the top of the list.
(Top image: Courtesy of Thinkstock)
Kati Suominen is the Founder and CEO of Nextrade Group, LLC and TradeUp Capital Fund. She is also Adjunct Fellow at the Center for Strategic and International Studies (CSIS), and Adjunct Professor at UCLA Anderson School of Management. She is authoring her 10th book, Globalization 4.0: How Disruptive Technologies Reshape Business and Policy in the Hyperconnected World.