Episode Transcript
[00:00:03] Speaker A: Mike King here in Johannesburg, South Africa. Welcome to the Freight Buyers Club. This content today is produced with the kind support of Ontigos Cloud, the freight forwarder, profitability specialist and I'm delighted to say that I'm joined once more by the CEO of DHL Express, it's John Pearson.
[00:00:21] Speaker B: Hello John, Nice to be here with you again.
[00:00:24] Speaker A: John. We're here for the update for your DHL connectedness tracker.
Now, quite surprising news to me, maybe not to you. The first part of 2025 we've seen faster rate of trade growth than at any time since 2010.
What's going on?
[00:00:43] Speaker B: That's exactly right. And I think it probably was a bit of a surprise to me, you know, despite what I think about global trade and globalization.
And just for your listeners, that's exactly right. Global trade grew faster in the first half of this year than at any time since 2010, apart from one spike during the pandemic, which is to be expected. Now there's two obvious reasons for that. One is that a lot of people anticipated some things happening on Liberation Day and there was a lot of forward ordering. So the volumes that went in from the world and China to the US really drove the that acceleration of growth and spikes in growth always show up as the statistic we just read out there. But the second thing is that you know, considerably, you know, finish the story is that China's growth to the rest of the world, non USA has been very impressive. In fact in the month of September, which isn't in that figure you just quoted, their growth was including the US 8% and growth into Sub Saharan Africa was 26. And I saw a report on Bloomberg and I was talking to Bloomberg this morning but I saw an August report where the headline is rather appealing was China is pouring exports into Africa. So it was surprising to me. I didn't think it would come out like that. But it's very clear which I think is gratifying. Exactly what the reasons for that was.
[00:02:11] Speaker A: The long term prognosis. And I'll come back to you mentioned the US there and tariffs and liberation I'll come back to in a second. But the long term prognosis was a forecast on an annualized growth basis of 2.5% through from 2025 through 2029. So what's driving business in early 25 carried on through to 2029? Is that the view?
[00:02:32] Speaker B: Well, I think there's a view that, you know, businesses self resuscitating and trade heals, these deals will get done. There's only Two left to do. China, you know, easier said than done. But a significant meeting on November 1 in India, which is likely to be in the fall. And the US wants to deal with both those countries. I remain hopeful of that.
Come. By the time we've got back from our Christmas lunch and got into January, tariffs will not necessarily be being talked about. Countries and companies will know exactly what they're dealing with. And as I've said to so many people, we should never underestimate the creativities of buyers and sellers who want to do business, who are sitting in boardrooms today with their commercial leaders, with their sales team saying, which market do we go to now? And as you said, we'll come back to de minimis in a minute. But there are merchants out there that says, right, our sales to the US because of the 800 have dropped by 60%. Where are we going to go now? So, you know, I think the WTO and the IMF have put that forecast together. It's a little bit off. The forecast for the next 10 years is actually identical to the forecast over the last 10 years, that 2.5 figure that Professor Stephen Ullman talked about. And these forecasts, they're very good on the one year term. They're a little bit off over time, but let's see how that performs. And they're also based upon a long term trajectory of trade and what it's done during other crises and so on.
[00:03:58] Speaker A: And so forth on the U.S. so obviously you mentioned the front loading that we've seen and the impact of tariffs and the end of de minimis exemptions. But the long term forecast in the tracker was pretty negative on the US where it was positive elsewhere.
Why so negative considering you're quite optimistic? Or is it just a case of we have to wait and see?
[00:04:20] Speaker B: Well, I'm not so optimistic on trade to the U.S. i think, you know, the tariffs are in place. They will definitely make a dent in that. I like to, you know, use this phrase. It seems like we've got one country that is retreating from trade and 219 that are absolutely recognizing what it's done for them over the last decade or two and that they don't want to lose it and they're going to find other, other partners and countries to do business with this whole concept. I'm more and more convinced of it as I see how trade is moving at the minute of, you know, water finds a way. People like to sell and buy and trade and they've done that since they were selling bear pelts from Russia to Germany 400 years ago. So I'm not so positive about trade to the US I think it's got to reach its level. That a minimus itself has put a big hole for reasons that the Trump administration would say is around. Fentanyl and so on has put a big hole in low value trade. Garden hose pipe fittings, T shirts, little back dresses. There's not going to be so many moving. That's quite clear.
[00:05:23] Speaker A: Okay. There was something that you said in your presentation that really caught my eye and it was on, I think it was relevant to trade lane deviation. It was for DHL Express that at the moment trade lane growth deviation is at record levels. Why is that? Maybe you could explain what that is first and then explain why it's so different at the moment.
[00:05:43] Speaker B: So in simple terms so your listeners can grasp it, the deviation between our fastest growing trade lanes generally in the DHL group and our slowest growing trade lanes generally in the DHL group is quite narrow. It spiked up in Covid and it spiked up in the global financial crisis. And here we are at 47 or 49% deviation. Well, that's quite simple because you've There were times where tariffs in China were 145% de minimis came in on May 3rd and China's US was minus 80. So that's helping the downside. And there are times when China is pumping volumes into Southeast Asia or let's say stay with the same example, Africa at + 26. Therein lies your standard deviation change. So there's this tariff created divergency in trade that creates those sort of flows. It's not about concentration of manufacturing changing suddenly from one place to another. Although the best example of that I can give you is the laptop production for the US which to Vietnam from China basically overnight. And if you drew it on a line graph, you'll see it come down from China and you'd see it go up from Vietnam. And this is why I said it's very important from a quality and service point of view that we're able to put new aircraft, additional aircraft, new aircraft, additional aircraft into Vietnam to take that capacity, which is probably somewhat unexpected to most people, but to the manufacturer, the OEMs and the manufacturers, I think it was rather anticipated because they had the manufacturing capacity. This was not volume that went from China to Vietnam and then was product washed and sent to the U.S. not at all. This product washing thing one has to be very careful with. It was volume that laptops that were built in B Now and now they're going to, now they're going to the.
[00:07:35] Speaker A: US but there is a danger. People are talking about product washing and cargo does find its way. It also finds a way to avoid tariffs. Do you think that's something that. Obviously DHL won't do that. But although people will maybe, maybe try and push those boundaries, I'm sure those.
[00:07:48] Speaker B: Boundaries will be pushed. Our job is to have the best possible export controls in place and be able to identify anything which is, you know, counter to anything that should be happening.
[00:08:01] Speaker A: Okay, we'll move on from that. Regular listeners to the Freight Buyers Club will have heard economists and thought leaders talk about things like, so the deglobalization, near shoring, friendshoring, regionalization, these concepts about what the future of world trade will look like. But your presentation yesterday was very bullish on globalization.
There's no new globalization.
There's no return to what we have from what we've had over the last 30 years. This is going to carry on. Why is that?
[00:08:33] Speaker B: Well, I think the facts are there. You got to deal in the facts. So everything points to globalization not giving way to regionalization in terms of the distance that trade is moving. The only really good example of not on shoring but near shoring is Chinese companies in Northern Mexico. Anything else that's out there, whether it's people moving to Eastern Europe to service Europe or anyone moving to Malaysia to service Malaysia or whatever it is, is very limited because just pure maths would say that if the distance trade is traveling is still 5,000 or even slightly more than it was 10 years ago. The line that Professor Altman used, globalization is not giving way to regionalization. So it seems to be the case. And those long trade routes, consumer and manufacturer, have been built up on a blend of efficiency and economics and they've served companies supply chains extremely well, even when there's been an absolute demand crunch of people over ordering stuff. You know, the logistics companies during the pandemic were able to keep up with that.
[00:09:39] Speaker A: Basically we're here in Africa. One of the things that you mentioned was the new I'll get the right name, African Continental Free Trade Area. You see that as a great driver of trade to and from Africa, but also a great driver of, of profits and revenue, presumably for DHL as well. What's your thinking on that? Can you explain a bit more?
[00:09:59] Speaker B: Yeah, well, I'd stick to the first part of that question and whether what it does for trade, if it's half as successful, asean, it'll be a big, big success. Intra regional trade, as defined by the Global Connectedness Tracker has increased since the last period of measurement. A reasonably ungenerous man or woman would say some of that might have come about because of some of the things in the Africa Free Trade Pact. There are, however, significant issues in terms of the last remaining countries signing up for it properly. Two or three members absolutely ratifying it, the tariffs coming out on a total basis rather than just a partial basis, and governments and policymakers doing all the things that they need to do to make Africa a sort of heterogeneous sort of logistics pool where you can move something by air or by boat, by by vessel or by truck seamlessly from one place to another. There are enough consumers and there's enough produced goods to be able to believe that goods are moving around the continent in the same way they're moving around the 11 member states of ASEAN. So I am optimistic. What it does for our is secondary. What it does for our revenue growth and profit is another thing. But we will be building service centers or gateways or distribution centers or mini hubs to satisfy any increase in trade and building out our RN network. We're considering a flight from Kenya to Johannesburg. Now, will we have the baseload to satisfy that on both routes? How can we link that then into Bahrain? So all these considerations, our feeder network now is very much into Lagos and our heavy feeder networks into Lagos and into West Africa. But yeah, all these things then just mean that we have to invest some more and we see some more growth. And that's what we hoped for and wanted from asean. And it's the same with this.
[00:11:48] Speaker A: John Pearson, CEO of DHL Express. Thanks for joining me today on the Freight Buyers Club.
[00:11:52] Speaker B: Thank you very much for your time.
