Are Global Supply Chains Fractured or Fortified?

March 19, 2024
By Melanie Stern

Business evolves, and supply chains are challenged. How can the profession accurately assess the global landscape when it rests on a moving target? The question was addressed during a DHL webinar last week, with discussion focused on whether global supply chains are fractured, fortified or finding their way.

The livestream event, hosted by Daniel McGrath, DHL lead communications and sustainability team Americas, included Andrew Williams, DHL Americas CEO, and professor Steven Altman, New York University (NYU) Stern School of Business and lead author of the DHL Global Connectedness Report 2024.

Conflicting Realities

The value generated by supply chain management hit US$21.95 billion in 2023 and, according to global data and business intelligence company Statista, could reach US$30.91 billion by 2026.

Altman attributed the growth, in part, to e-commerce, calling it “a democratizing force in global trade, allowing entrepreneurs access to global trade, no matter the size of their business.” However, the numbers showed challenges and lackluster movement depending on industry focus, perspective and boots-on-the ground experiences.

In 2023, audit, tax and advisory services company KPMG found that 71 percent of global companies cited raw material costs as their top supply chain threat for the year. Global trade volumes fell flat in 2023, per findings from the World Trade Organization (WTO), though a slight uptick is expected in 2024.

Hongkong and Shanghai Banking Corporation Limited (HBSC) reported year-over-year global trade volume reductions, 2.5 percent in 2023, with Vietnam and South Korea export levels falling 15 percent in the same timeframe.

Nonetheless, Williams said that global trade remains constant but shifting, migrating to other trade flows — a response to geopolitically driven disruptions. He said the logistics company is responsible for nearly one million shipments a day.

De-risk, Decouple and Diversify

U.S. and China flows have declined 25 percent since 2016, said Altman, adding that the drop does not equate to a decoupling, but more of a contraction. “Decoupling truly happened with Russia, after its invasion of Ukraine,” he said. “The decline in trade blocs took place because of the coronavirus pandemic.”

U.S. imports from China and collaboration between the countries have diminished. To fill the trade gaps due to supply chain restraints, tariffs and other regulations, North America has fortified its own trade economy. For example, DHL recently invested US$1.5 million to expand the company’s dedicated life sciences and health-care logistics network across the U.S. mainland and Puerto Rico.

“The shift from international to domestic activity is real through increasing capital investments, information and people flows,” said Altman. Businesses are deescalating their risk by “omni-shoring,” moving from China and increasing activity in Mexico, though China remains a big player, he said. “With a new airport near Mexico City and direct flights to Asia, Argentina and other countries, global trade just acquired another hub,” Altman said.

However, the DHL Global Connectedness Report 2024 findings, collectively, told a different story.

International Flows — an Unexpected Trend

One of many key takeaways in the report findings, said Altman, is that amid record-high globalization, converse to regionalization and the push to de-risk, but the trend presents opportunities.

If you examine the trade figures from elsewhere in the world, he says, “there is no true fracturing of global trade from China, nor cutting ties with their strategic partnerships.” Moreover, companies engaged trade with countries that are farther away.

Tightening U.S. trade policies affected drastic change. The report showed North American trade plunged to levels not seen since 2005, and trade activity, on average, is within distances of 6,300 to 6,500 miles, indicative of regionalization. South America increased nearshoring efforts, with a median trade distance at 10,000 miles.

Escalating business ties to Mexico have not balanced their trade activity: on average, imports traveled 7,000 miles and exports 2,800 miles.

Regional Focus Blurs the Big Picture

The DHL 2024 report reviewed global trade activity, volume and flows to derive a list of the world’s most globally connected countries. North America’s reshoring initiatives put a dent on U.S. global trade standings. According to the research, the top three internationally connected countries were Singapore, the Netherlands and Ireland (in descending order), with the US falling to 44th place.

Altman said that deglobalization remains a risk but is not yet a reality. By focusing on the threats of deglobalization, he said, “those can become self-fulfilling prophecies.” He said businesses and governments need to keep perspective and see globalization as an opportunity and continue to invest abroad to keep pace with or exceed domestic investments.

(Image credit: Getty Images/DKosig)

About the Author

Melanie Stern

About the Author

Melanie Stern is Manager, Communications at Institute for Supply Management®.