1.
Transportation and Logistics 2030 New Hubs, New Spokes, New Industry Leaders? Key Findings for the Road Freight Industry
Dr Andrew Shaw
Presentation to Road Freight Association
20 May 2013

2. 1 Changes in global trade and logistics patterns 3
Table of Contents
Section
Overview
Page
1 Changes in global trade and logistics patterns 3
2 Emerging economies driving growth 11
3 China as an investment destination 17
4 Outlook 26

3. 1
Changes in global trade and logistics patterns
Page 3

4. 2009 distribution of world exports by exporting country/region
Date
Change in exports by region
1990 distribution of world merchandise exports by exporting country/region
2009 distribution of world exports by exporting country/region
North America’s and Japan’s decline in export market share is significantly greater than that of Europe,
Africa’s export share of global exports has increased by more than 50%, albeit from a low base, and
Developing Asia’s export share has increased three fold
Source: PwC Economic Views, Future of World Trade – Top 25 sea and air freight routes (March 2011)
Page 4

5. Globalisation
Important sales and supply markets evolve in which emerging and least developed countries play a major role. New transport corridors will emerge, especially between Asia and Africa, Asia and South America as well as intra- Asian.
May 2013

6. Top 25 bilateral trade pairs in 2009 (sea and air freight)
Date
Top 25 bilateral trade pairs in (sea and air freight)
Source: PwC Economic Views, Future of World Trade – Top 25 sea and air freight routes (March 2011)

7. Top 25 bilateral trade pairs in 2030 (sea and air freight)
Date
Top 25 bilateral trade pairs in 2030 (sea and air freight)
Source: PwC Economic Views, Future of World Trade – Top 25 sea and air freight routes (March 2011)

8. Date
China will dominate global trade in 2030, featuring in 17 of the top 25 bilateral sea and air freight trade routes.
Source: PwC Economic Views, Future of World Trade – Top 25 sea and air freight routes (March 2011)

9. Evolution of 2030’s largest bilateral pairs
Date
Evolution of 2030’s largest bilateral pairs
Evolution of the five fastest growing bilateral pairs
Source: PwC Economic Views, Future of World Trade – Top 25 sea and air freight routes (March 2011)
Page 9

10. Trade between China and Africa
Headline
Trade
Bilateral trade between China and Africa has risen from US$8bn to US$73bn in current prices between 2000 and
China - Nigeria
Trade flow forecast to increase nearly eight times by 2030.
In 2010 the China State Construction Engineering Corp agreed a $23bn deal to build 3 refineries in Nigeria.
Infrastructure
Investments and agreements for natural resources have been struck across Africa, including those for oil in Sudan, Angola and Algeria, copper and agriculture agreements in Zambia and mining in South Africa.
China has also invested heavily in transport infrastructure (e.g. Kenya). Trade flows from China to Africa mainly consist of Chinese consumer goods. In the next twenty years the flows of merchandise exports between China and Africa is expected to be a key growth area for global trade.
Source: PwC Economic Views, Future of World Trade – Top 25 sea and air freight routes (March 2011)
Page 10

11. 2
Emerging economies driving growth
Page 11

12. The structure of ‘emerging’ economies differ substantially
China: by far the highest GDP, but relatively low per capita
GDP per capita seems to correlate with urbanisation rate
Only India has lower GDP per capita and urbanisation rate than China
Smaller economies show higher GDP per capita and urbanisation rate – Brazil – Mexico – Russia – Turkey
Urbanisation  facilitates centralised distribution strategies
Source: PwC T&L 2030, Volume 3: Emerging Markets – New hubs, new spokes, new industry leaders? (Dec 2010)

13. Logistics performance of ‘emerging’ economies
Logistics Performance Index (World Bank) summarises logistics performance of countries in six areas: – customs – infrastructure – international shipments – logistics competence – tracking & tracing – timeliness
China leads the group of seven (ranked 27th among 155 countries covered), mainly due to the high quality of transport infrastructure
South Africa (ranked 28th) leads in competence and quality of logistics services
Source: PwC T&L 2030, Volume 3: Emerging Markets – New hubs, new spokes, new industry leaders? (Dec 2010)

14. Territory insights – Seven routes to one goal: growth.
Source: PwC T&L 2030, Volume 3: Emerging Markets – New hubs, new spokes, new industry leaders? (Dec 2010)

15. Territory insights – key findings
Customs union ‘Mercosur’ – trigger for logistics activities
2014 FIFA World Cup, 2016 Olympics – trigger for FDI and upgrading of transport infrastructure
Domestic demand for logistics services will grow strongly, relevance of FDI may decrease
CEP market promising double-digit growth
Opportunities for the private sector envisaged, following continued privatisation of T&L operations
Gradual policy reforms should encourage FDI in the T&L industry
Multinationals dominate the logistics demand
Growth in international trade will depend on the effectiveness of regulatory reforms
Special economic zones will stimulate trade flows between Asia, Europe and North America
The level of competition of multinational logistics service providers is expected to grow
Starting point of a new transport corridor to Asia; investments in transport infrastructure needed
Ports, railways, pipelines – public; road transport and logistics – private
Continued growth and new opportunities in 3PL and CEP
Wave of privatisation – ports first; highways, maritime operations, bridges, railways to follow
Source: PwC T&L 2030, Volume 3: Emerging Markets – New hubs, new spokes, new industry leaders? (Dec 2010)

16. 8 assertions about the future of emerging markets
Regulation
Transport corridors
Consolidation
Competition
The establishment of free trade zones and resulting increases in foreign direct investment will lead to above-average growth of the transportation and logistics industry in emerging markets.
Important sales and supply markets evolve in which emerging and least developed countries play a major role. New transport corridors will emerge, especially between Asia and Africa, Asia and South America as well as Intra-Asian.
After a period of tremendous market growth and continuous market entrance of multinational LSPs, the T&L industry in emerging markets will face fierce competition followed by consolidation.
LSPs from emerging markets will not gain significant market share in developed countries, even low-tech logistics solutions are not perceived as a viable route to win market share.
The degree and pace of privatisation of state-owned T&L organisations will strongly differ among emerging markets; while governments in some cases become watchdogs, they are still the game makers in others.
It’s all about money ─ the importance of barter trade diminishes.
The T&L industry in emerging markets will increase its level of professionalism, partly driven by strong commitment, technology and know-how transfer of multinationals in their markets.
LSP from developed countries will heavily engage in emerging markets, however emerging markets will not become the new centres of gravity in logistics as regards standard setting, innovation and technology transfer.
Source: PwC T&L 2030, Volume 3: Emerging Markets – New hubs, new spokes, new industry leaders? (Dec 2010)

17. The future for Logistics Service Providers
Date
The future for Logistics Service Providers
Logistics Service Providers (LSPs) from developed countries will heavily engage in emerging markets. Emerging markets will not become the new centres of gravity in logistics as regards standard setting, innovation and technology.
Competition
Seven of twenty most important ports are located in China
Innovations, standard settings and headquarters will remain in developed countries representing the centres of gravity in logistics
Some emerging economies demonstrate low-tech low-cost innovative domestic logistics solutions
PwC (2010) Delphi panel: does not see a shift before 2030
World Port ranking in container traffic in 2008
Source: Institute of Shipping Economics and Logistics
 LSPs from emerging markets should focus on their more attractive domestic markets and seize opportunities to enhance their service level and logistics capabilities.

18. Percentage modal share for domestic freight (2007), as measured by ton kilometre
Source: Source: McKinsey and PwC Research, Van Eeden & Havenga (2011), National Department of Transport South African Maritime Study (July 2011)

19. 3
China as an investment destination
Page 19

20. China remains the top investment destination
56%
Russia
19% US
34%
Turkey
25%
India
37%
Mexico
26%
Indonesia
12%
Brazil
52%
South Africa
11%
While interest in China remains very strong, it’s beginning to face growing competition from other developing nations.
When asked to select three key markets to invest in, 56% of survey participants chose China.
But Brazil is now close behind, with 52% of the respondents making the South American nation among their three choices.
Page 20
Source: PwC Choosing China: Insights from multinationals on the investment environment (2013)

21. Areas global CEOs want China’s Government to focus on
Improving government transparency and anti-corruption
73%
Reducing intervention in the economy and allowing an increase in private competition
53%
When executives were asked what China's government could do to improve the investment environment… at the top of the list were improving government transparency and anti-corruption.
Greater transparency and enhanced accountability would help overcome the competition issues – making it easier for foreign enterprises to plan ahead. They would also be a helpful step towards providing investors with greater certainty and a more level playing field to do business.
The second recommendation to improve the investment environment was reducing intervention in the economy and increasing private-sector competition.
Page 21
Source: PwC Choosing China: Insights from multinationals on the investment environment (2013)

22. China’s reform measures investors find attractive
Economic development driven by domestic demand 
48%
Financial reform, steady liberalisation of foreign exchange controls and interest rate policy
43%
Doubling residents’ per capita income by 2020
41%
The Chinese leaders identified a number of the reform measures during the18th National Congress of the Communist Party of China.
When foreign investors were asked which would have the greatest impact on their business, their top three were:
economic development driven by domestic demand,
financial reform and liberalisation of foreign exchange controls and interest rate policy, and
the doubling residents’ per capita income by 2020.
It is interesting that these measures are in line with some of the 2013 targets highlighted in the Government Work Report noted by outgoing Chinese Premier Wen Jiabao in March 2013.
Page 22

23. China could overtake US as world’s largest market in PPP terms by 2017
2027
China could overtake the US in PPP terms
China could overtake the US in MER terms
China’s economic progress in recent decades has been breath-taking.
And in fact, looking ahead, in just four years’ time, PwC projects China could overtake the U.S. as the world’s largest market in purchasing power parity terms.
A major factor in China’s rapid growth has been its spectacular success in attracting FDI, however, it’s clear today however China faces growing competition to its global FDI leadership.
PPP: purchasing power parities
MER: market exchange rates
Source: World in The BRICs and beyond: prospects, challenges and opportunities. Published by PwC, January 2013
Page 23
Source: PwC Choosing China: Insights from multinationals on the investment environment (2013)

24. Parts of the value chain carried out in China by German companies
China’s economic progress in recent decades has been breath-taking.
And in fact, looking ahead, in just four years’ time, PwC projects China could overtake the U.S. as the world’s largest market in purchasing power parity terms.
A major factor in China’s rapid growth has been its spectacular success in attracting FDI, however, it’s clear today however China faces growing competition to its global FDI leadership.
Source: PwC Logistics in China: An All-inclusive Market? (Jan 2012)
Page 24

25. Level of development of logistics services providers in China
China’s economic progress in recent decades has been breath-taking.
And in fact, looking ahead, in just four years’ time, PwC projects China could overtake the U.S. as the world’s largest market in purchasing power parity terms.
A major factor in China’s rapid growth has been its spectacular success in attracting FDI, however, it’s clear today however China faces growing competition to its global FDI leadership.
12%
Of PwC survey participants only 12% rated logistics providers’ in China average level of development as “high”
Page 25
Source: PwC Logistics in China: An All-inclusive Market? (Jan 2012)

26. 4
Outlook
Page 26

27. Outlook Growth in China will continue to dominate world trade:–
Growth in China will continue to dominate world trade:
China will continue to be an attractive investment location
Largest growth in trade lanes will be between China and other emerging economies
The practices of logistics service providers in China will lag those of the developed world
Africa, with Nigeria and SA in the lead, will build closer trade links to China
Logistics performance in South Africa is ahead of many emerging economies
A period of growth in the logistics industry to support rapid changes in trade patterns and growth in emerging economies is likely to be followed by a period of consolidation
2011 was a year of a great contrast for the mining industry - record profits for the Top 40 of $133 billion (up 26%) but market capitalisation fell by 25%
Heightened shareholder calls for capital discipline
Top 40 invested $98 billion in capital projects in plan for a further $140 billion for 2012
Continued structural change of high commodity prices, underwritten by higer production costs and lower grades. However, this does not guarantee increasing gross margins
Story for the future will be about bringing on supply through the right projects
The market doesn’t seem to be buying the industry’s long-term growth story, sending share prices lower has shown the growing disconnect