Agility Emerging Markets Logistics Index 2011

Logistics means the management of the flow of goods and services between the points of origin and consumption. The system is designed to meet the requirements of customers and involves the integration of information, transportation, inventory, warehousing, material handling and packaging. Security is often also a part of the process.

This is the supply chain. It adds the value elements of time, place and utility that nowadays, with the complexity of production and the competition found in globalization, can be modeled, analyzed, visualized and then optimized as different countries compete in the marketplace.

Transport Intelligence is a leading independent source for research and analysis of the European logistics market. They recently published the “Agility Emerging Market Logistics Index 2011”. The study is a detailed ranking and analysis of the world’s major developing logistics markets.

Cathy Robertson is a Senior Analyst for Transport Intelligence. She chatted with MexicoNOW. She explained that in order for competitiveness to qualify for a country in their logistics, for instance, there are diverse factors to be considered. She explained: “In order to measure the competitiveness of a country’s logistics, one needs to take into account a variety of factors such as the nation’s infrastructure, ease of doing business within the country, foreign direct investment (FDI), government regulations that are open towards trade, GDP growth/ forecasts and a number of other economic measures.”

At the introduction of its 2011 Index, Transport Intelligence pointed out that the year 2011 could be the year when many emerging markets come of age. According to Ms. Robertson: “Although many markets, such as Brazil, are influenced by Chinese investments and demand, they are also experiencing growth in domestic consumption as GDP per head rises. The likelihood of higher oil prices in 2011 will bring about many challenges for emerging markets. Some manufacturers will be encouraged to repatriate manufacturing operations in markets closer to end-consumers in the west. As a result of these actions benefits will be brought to some economies such as Mexico and Turkey,” she said.

The Agility Emerging Market Logistics Index 2011 compares the major emerging markets on a number of different metrics. These identify the key attributes which will make the market attractive from the point of view of logistics, air cargo, shipping lines and freight forwarders.

Transport Intelligence published some of the analysis and results of the Index. For instance, they said that China, which tained its number one position as the most attractive investment market for logistics companies. The country remains top for market size and growth attractiveness and retains second place for market connectedness. China’s connectivity to global shipping networks is among the best in the world. It offers access to a global system of ocean freight of high capacity and frequency thus enabling trade.

India, Brazil and Indonesia also remain in the top five investment markets for logistics companies with no changes among their rankings. Russia’s total index score also increased, moving it up one position to join the other ‘BRIC’ nations in the top five. This increase was driven by improvements in the country’s GDP growth forecast, foreign direct investment (FDI) and reductions in security threats. The biggest move upward in the total index rankings was Saudi Arabia which climbed four places and saw the greatest increase in its overall score.

Egypt had the most dramatic movement down the index. It fell four places taking it out of the top 10 most attractive markets for logistics companies. The country saw a significant decline in its market compatibility score to below average due to increases in the business costs of crime, violence and terrorism. This significant fall in market compatibility has reduced the consistency of Egypt’s scores.

Exhibit 1 shows the Agility Emerging Market Logistics Index as determined by Transport Intelligence. In this way, Mexico is ranked as the seventh most attractive and competitive logistic country with a 5.98 grade. That qualifies it as the second most important country in America, just behind Brazil. It also indicates that Mexico went two places downward, compared to the previous Index (2010). It also shows the Market Size and Growth Attractiveness and Market Compatibility and Connectedness sub-indexes. Mexico’s higher grade is in Market Size and Growth Attractiveness and its lower grade in Market Compatibility.

Exhibit 2 features the Market Size and Growth Attractiveness sub-index. In terms of scale and growth prospects it is of little surprise that the most attractive markets are China and India. Indonesia, Brazil, Russia and Mexico also stand out as offering the greatest opportunities. At the other end of the scale, however, Bahrain, Paraguay and Uruguay are the smallest markets offering the least potential for investors.

In this context, Mexico ranked 6th, just behind China, India, Indonesia, Brazil and Russia, mostly members of the BRIC. According to Cathy Robertson, Mexico’s strategic location is one of the most important factors to qualify it as one of the most attractive growth markets. “Mexico’s geographic location,” she says, “is a definite positive for the country. This is due to increasing transportation costs,” she explains, “and high labor costs. Manufacturers are beginning to relocate their facilities from Asia closer to North American markets. Mexico is a first choice for many manufacturers thanks to the country’s close proximity to the U.S. market.”

“Many manufacturers,” Robertson continued, “have taken advantage of the NAFTA regulations. Although NAFTA is one of the country’s most important trade agreements, more than 90% of Mexican trade is under free trade agreements. The Mexican government has been actively pursuing trade agreements with other countries to reduce its’ dependence on U.S. trade. Not only is Mexico able to take advantage of the close proximity to the U.S., but also with the Latin America region as Mexico looks to increase trade with its Latin American neighbors. In 2010, Mexican exports to South America increased 50.4%. The Latin American region now accounts for 7% of total exports.”

“To encourage trade,” Ms. Robertson added, “…the government has been investing in the country’s infrastructure, projects such as the expansion of Port Lazaro Cardenas and improvements in the highway system.”

Exhibit 3 illustrates the sub-index of Market Compatibility. From this perspective, Oman scores well against a range of criteria including low business costs from crime and terrorism; high levels of foreign direct investment; good market access; high degree of service sector development and urbanization. It is this figure where Mexico obtains its lower grade, being ranked after position 25th.

Cathy Robertson, Senior Analyst for Transport Intelligence, explained some of the factors that have not been negative for Mexico and the reasons why Mexico has stepped down a few places in the Index. Cathy pointed this out: “As the U.S. is Mexico’s largest trading partner, it is heavily dependent on that country. As the U.S. economy declined in 2009, so did Mexico’s. For 2010, NAFTA trade did a nice rebound and there was an almost 28% increase between the two countries.”

The Connectedness sub-index is shown in exhibit 4. This sub-index is made up of components including liner shipping connectivity; airport density; customs efficiency and infrastructure strength. The United Arab Emirates scores highest, followed by China and more surprisingly next comes Chile. A range of Middle Eastern countries also score well. At the other end of the spectrum we have Nigeria, Bangladesh and Tanzania all suffering from very poor connectivity. Mexico, again, ranks among the best here being among the top 11 positions.

Exhibit 4 provides another way of featuring the relative positions of the countries in the survey. The chart is divided into four quadrants and the countries are plotted on axes of ‘Market Compatibility and Connectedness’ (according to the average of their scores in both these sub-indices) . And there is ‘Market Size and growth’. Here the size of the bubble denotes the size of the opportunity.

Countries in the top right quartile are those which represent the biggest targets for logistics’ investment, as well as the easiest markets in which to operate. They already have good compatibility and connections. In the top left quartile are the countries which represent smaller market opportunities, but they are also easily penetrated, such as the UAE.

The bottom half of the chart includes countries in which there are significant barriers to market entry and difficulties in operating. As these economies become more mature, de-regulated and better connected with the global markets they will certainly move toward the upper quartiles.

Mexico has been located between the countries that feature a high market potential with regular barriers to market entry.

In the additional information provided by the Index, Mexico is considered the 11th most promising market to emerge as a major logistic hub. It is among the markets that have expanded most in the past five years. India has witnessed the highest level of FDI in the recent 5 years, followed by Brazil and then the UAE. This correlates directly with question 1, which investigated the markets believed to represent major logistics hubs in the future.

MEXICONOW next asked Cathy Robertson about the present and the future of Logistics in Mexico. She had this to say: “The present state of the Mexican logistics market is a positive one. NAFTA trade is increasing, exports to other countries are encouraging and the near-shoring trends are all benefiting the Mexican logistics market. The future for the Mexican logistics market also looks bright. As long as oil prices remain high and the economies of Western countries continue to slowly improve, the near-shoring trend will be beneficial for Mexico. Not only will near-shoring be a positive trend for Mexico but increasing exports to other countries will help lessen their reliance on the U.S.”

Ms. Robertson concluded by mentioning that Mexico is a major location for automotive manufacturers. To encourage diversification, the country is looking to also be a major location for high tech and pharmaceutical manufacturers as well, she observed.

CREDITS

Along with those companies expected to figure in the top ten (India, Brazil, Russia and the UAE), the near-sourcing markets of Turkey and Mexico have been on the recent list of expansion companies.

From its roots in the emerging markets, the effort identified as Agility brings efficiency to supply chains in some of the globe’s most challenging environments. Agility offers unmatched personal service, a global footprint and customized capabilities alike in both developed and emerging economies. A publicly traded enterprise, Agility is one of the world’s leading providers of integrated logistics. It has close to US$6 billion in annual revenue and more than 25,000 employees in 550 offices throughout 100 countries. Agility’s commercial business, Global Integrated Logistics (GIL), is headquartered in Switzerland. Agility GIL provides supply chain solutions to meet complex and traditional customer needs. GIL offers air, sea and road freight forwarding, warehousing, distribution and specialized services in project logistics, fairs and events, fuels and chemicals.

Agility’s unique collection of portfolio businesses includes Agility Defense & Government Services. This is a logistics provider for governments, ministries of defense and international organizations. Agility’s Infrastructure group of companies manages commercial and industrial real estate and offers solutions in customs’ optimization and clearance, waste management and recycling, aviation services, remote infrastructure and life support.

For more information about Agility, visit www.agilitylogistics.com/emergingmarkets. It is one of the world’s leading providers of expert research and analysis and is dedicated to the global logistics industry. The expertise of professionals with many years’ experience is fully utilized in the mail, express and logistics industry. Transport Intelligence has developed a range of leading market web-based products, reports, profiles and services used by the world’s leading logistics suppliers, consultancies and banks as well as many users of logistics services.

Cathy Robertson is a Senior Analyst of Transport Intelligence who kindly participated in the preparation of this report.