Commentary: COVID-19 — globalization’s biggest test yet

The views expressed here are solely those of the author and do not necessarily represent the views of FreightWaves or its affiliates. 

As we entered 2020, globalization was already facing a number of challenges: A major trade war between two of the world’s economic superpowers and the U.K.’s impending withdrawal from the EU trading bloc, in particular, had created uncertainty that slowed investments and fractured many companies’ supply chains. At the same time, the DHL Global Connectedness Index — a measure of globalization — showed at the end of 2019 that the world was still more connected than at any point in its history. Despite the challenges, trade was proving resilient.

Now, four months into the year, I think it is safe to say that globalization is up against its biggest test yet of modern times. In a report issued on April 8, the World Trade Organization (WTO) forecast that world merchandise trade is set to plummet by between 13 and 32% in 2020 due to the pandemic. This would exceed the drop in trade precipitated by the 2008-09 global financial crisis. The response to the pandemic has brought a number of major industries to a standstill, while the surge in demand for masks, ventilators and other essential supplies has placed immense pressure on global supply chains in a variety of ways. The massive reduction in passenger flights, for example, has taken up to 50% of the available air cargo capacity out of the market on some of the main intercontinental trade lanes. Transport and customs authorities have had to modify their processes while reinforcing their checks on imported goods to handle a surge in urgently needed pharmaceuticals, medical equipment and other controlled materials. And companies throughout the supply chain have had to reengineer their processes to safeguard workers and mitigate risks of spread while ensuring that the most essential goods are prioritized and distributed efficiently to where they are needed.

Some have questioned whether globalization was actually part of the problem. They argue that the spread of the pandemic was enabled by open borders, and the mass movement and intermingling of people around the world. Recent media reports also point to examples where national responses to the crisis are perceived to be fracturing international cooperation, even within trading blocs. At the same time, we at DHL are in the privileged position of seeing that this is overwhelmingly not the case. We are seeing many positive examples of customers, nongovernmental organizations and government agencies summoning their resources to meet this unprecedented challenge. We are also seeing companies across a multitude of industries support the global response, from automotive and consumer goods companies repurposing their manufacturing toward essential goods to entrepreneurs finding creative ways to apply existing or new technology to solve problems at scale. This gives me the confidence that globalization will actually provide most of the solutions that finally get us through the crisis and, I sincerely hope, minimize the human toll.

One positive (relatively speaking) outcome of the crisis for our industry is that it has raised awareness of just how important logistics and transportation is as a backbone of the economy and society in general. Governments around the world have, commendably, recognized the role of logistics companies as essential service providers — supporting the relief effort but also protecting livelihoods by helping trade continue to the extent possible. This has included the shift to online trade which, while still difficult to read perfectly in the current climate, seems to be taking hold at an even faster pace. Research by consulting company Kantar for Detail Online found, for example, that the share of consumers in Europe making more than half of their purchases online had increased dramatically in Europe’s three biggest e-commerce markets, with 60% of them planning to maintain their online spending habits after the crisis. While the medical professionals and first responders who are battling the effects of the virus on the front lines are the principal heroes of this crisis, delivery drivers and warehouse workers throughout our industry deserve huge credit for the commitment they have shown in turning up to work and keeping so many products moving for customers in this challenging environment.

So what are the future implications for globalization? The WTO forecasts that nearly all regions will suffer double-digit declines in trade volumes in 2020, with exports from North America and Asia on course to be hit hardest. They predict that we can expect a recovery in trade in 2021, provided the virus can be contained within a reasonable time frame. Businesses, and in particular those that are engaged in global trade, will play a central role in that recovery. Our company is already seeing a revival in exports from China and Asia-Pacific, and also a stabilization in parts of Europe. The pace of this recovery is a cause for optimism and a testament to the resilience and enterprise of our customers. Companies with an international — rather than local — perspective will be best positioned to capitalize on the growth opportunities that arise. Longer-term, we can be confident that trends such as digitalization, innovation and e-commerce will have been accelerated as a result of this crisis. By challenging our resilience and resourcefulness, it will have unlocked further innovation potential. As entrepreneur Mark Cuban recently remarked, “When we look back in five years, we are going to realize that there were 10 to 20 amazing companies that were started [during this time] that changed the world and led us to a brighter future.”

It is still early to draw too many conclusions about the lessons learned for businesses and their supply chains, but a key focus for most companies will be on their risk strategies. It is highly improbable that anyone could have effectively (or affordably) invested in enough resources, inventory or capacity to weather this storm. At the same time, there is clearly already a case for companies to apply more effective risk monitoring and management, which requires faster access and better exchange of data throughout the world. It will also require them to introduce more flexibility to adapt to supply chain disruption, which means diversifying their international networks of supply, production and transportation to the extent possible and increasing their responsiveness with technology and innovation. All of these things call for more — not less — globalization.