Globalisation to be reshaped by coronavirus (source: Lloyd’s List)

Shipping should take heart from a new report that suggests globalisation will continue to be the driving feature of world trade after the pandemic. Reshoring and regionalisation are both flawed.

Multinationals will diversify their sources from a single country to more than one location in a bid to manage risk. But shipping must recognise that alternative trade options are being considered

THE coronavirus pandemic is more likely to reshape globalisation than kill it off, according to a new report.

World trade was slowing in 2018 as protectionist policies were put in place and the US-China trade war ramped up, and the lockdown measures introduced as a result of the cornavirus outbreak seems to have put the brakes on globalisation.

However, the Economist Intelligence Unit believes the alternatives are expensive and would take time and effort to get right. A mixed approach is thought to be more credible.

“As multinational companies adapt to the current climate and build resilience into their operations, retreating from international commerce is unlikely to be desirable or profitable,” the research and analysis division of the Economist Group says in a report titled Down But Not Out?

Some investment may go towards reshoring, nearshoring and stockpiling, as well as into technologies to facilitate these processes.

Reshoring, one of the more extreme options for limiting supply-chain exposure, carries the risk of shutting companies off from essential markets while denting the potential to sell competitively at home.

Automation and 3D printing could offer workarounds to facilitate reshoring. However, these technologies are not available for all industries and, the EIU believes, “it could be some time before they are”.

Nor can stockpiling be seen as a long-term option. “Stocking the right parts or products in the right quantity from the right source in a sustainable and cost-effective manner is far from an intuitive process. It is especially daunting for industries like consumer electronics, whose components become outdated quickly,” the report observes.

Regionalisation was not very successful even before the pandemic. To give one example, Mexico is a low-cost production hub close to the US that offered nearshoring opportunities. However, relations between the two countries remain tense as President Trump continues to push a protectionist and anti-immigration agenda ahead of the US elections in November.

Meanwhile, Mexico’s response to the coronavirus crisis has been slow and ineffective, “making it a questionable alternative to Asian economies whose recoveries are occurring much more rapidly”.

The report suggests there will be a greater focus on diversifying supply chains away from a single country and instead throughout a region. This trend is already taking place in Southeast Asia, with countries such as Vietnam benefiting as interest shifts from China.

Well-resourced companies will be better placed to build redundancy across multiple points in their operations. They also may benefit from having the capacity to act more slowly and deliberately, ensuring that their investments are equipped to pay off in the long term and respond to future crises.

“Policymakers and country investment promotion offices would be wise to appeal to firms as they look for sustainable and diversified solutions,” the report concludes. “The result could well lead to a new chapter for globalisation, with international commerce stretching more fully across the globe.”