Imbalance of trade

So far, we have looked at the growth of globalisation and how it has shaped global logistics as it is today – but what are the problems with globalisation and how does this affect global distribution systems?

Let’s start by looking at the issue of trade imbalances and their negative effect on global logistics.

Let’s start with the fact that trade in goods appears to be flowing from developing countries to developed ones. Global brands are mainly based in the developed world as are most of their sales. This causes an issue with the routing of international journeys starting in (say) Southeast Asia. As volumes are high in this direction, freight rates for full container loads are twice as much from Asia to (say) the EU compared with the opposite direction. This is because volumes are lower.

As mentioned earlier, the outbound journey costs must cover an almost full round trip. This causes repositioning problems with too many empty containers sitting empty at ports in the EU and not enough back in Asia, which are needed to ship more goods. If trade flows between the trade blocs were more even, this would not be such a problem.

Traditional vs circular routing illustration. For traditional routing, the illustration shows system vessels move in both directions on each route. If imbalances exist on any of the routes then these will not be avoided. For the circular routing, the illustration shows system vessels move in one direction only, preferably in the direction of the greatest traffic volume.

This is partially solved by changing the routing of containers from a traditional there and back system, to a circular routing system (Mangan and Lalwani 2016).

This involves sending the container on a further full paying journey to another destination where there are better return rates back to the original port. This means containers take longer to get home, but the asset earns a better return for the round trip.

This does not solve the problem if the container is specialist in any way. Refrigerated containers have even less return load opportunities than ambient loaded containers. They probably need to return quicker as they are less numerous. The quicker they are reloaded, the more return they earn, so circular routing would not be suitable.

Global shippers have built up a huge quantity of containers in circulation. According to the World Shipping Council (2019) there were 34.5m 20-foot equivalent TEU containers globally in 2013. Approximately 1.6m containers are added to this fleet annually, with the majority manufactured in China where they are most needed.

This demonstrates a huge underutilisation of resources because of trade imbalances. What happens to the empty containers? Many are stored at ports awaiting loading. Others are scrapped or sold for different uses and are taken out of global usage.

As some global movements of goods move to more regional usage through circular routing with quicker journey times, some of the trade balances should even out. But there will always be trade imbalances when globalisation encourages outsourcing to nations with lower labour rates.

Your task

Identify the freight routes where you believe directional imbalances exist between your home country and one of the trade blocs. Investigate why these imbalances exist and summarise your findings in the comments area.


References

Mangan, J. & Lalwani, C. (2016) Global Logistics and Supply Chain Management. Chichester: Wiley

Share this article:

This article is from the free online course:

Principles of Global Logistics Management

Coventry University