Navigating the Waters of Change in International Logistics

Key transformation in global logistics facing inventory shortages A growing number of companies are consolidating their logistics space, subleasing unused capacity, and seeking to improve existing sites instead of adding facilities. This change is described as the latest sign that supply chains are returning to more normal patterns after dramatic shifts during the pandemic, when product shortages and transportation disruptions in Mexico drove a boom in demand for distribution centers. The amount of warehouse space in the US listed for subleasing reached a record at the end of 2023, with more than triple the amount available two years earlier. Although average lease prices continue to rise, increases have been drastically reduced from levels of just over a year ago. This suggests that adjusted inventory strategies may extend to storage space for some time. Furthermore, collaboration between international logistics companies and Mexican transportation becomes increasingly crucial in this changing environment. Transportation In any battle for supremacy on the seas, China has a clear advantage in its shipyards. More than half of the world's commercial shipbuilding production came from China last year, making it the leading global shipbuilder with a wide advantage. Companies report that once prolific Western shipyards have shrunk while most of what China doesn't build comes from South Korea and Japan. This shipbuilding empire is a symbol of China's historical transformation into a maritime power and a pivotal strategic asset while Chinese leader Xi Jinping attempts to reshape the world order. "The rise of Chinese shipyards and their impact on international logistics" The giant Chinese shipbuilding firms that produce merchant ships are frequently the same ones that build warships for the Chinese navy. Those shipyards are thriving, with multibillion-dollar contracts for container ships, tankers, and bulk carriers. With their order books filled for the coming years, shipyards have built expansive supply chains, essential for the international logistics industry in global product distribution. Additionally, the growing importance of collaboration between countries in international logistics matters highlights the need for closer cooperation in managing global trade flows. For all the discourse about globalized trade and international logistics being past its peak, maritime volume data in early 2024 appears solid. And if reports from shipbuilding companies are indicative of anything, the sector should continue its growth through the end of the 2020s and beyond. "The changing landscape of shipbuilding and its impact on trade" According to an article published last week, production schedules at most of the country's shipyards are booked until 2026. China's shipbuilding production has grown dramatically since the early 2000s, when it represented around 10% of global market share directly affecting the global market and international logistics, to more than 50% (more than 43 million deadweight tons) in 2023. Its shipyards secured more than 65% of all new orders last year. China has a smaller share in certain high-value segments, such as LNG vessels, where it is responsible for approximately 15% of the order book, with South Korea leading the market and international logistics. But even that could be changing as constant technological improvements reinforce orders for specialized vessels such as chemical tankers, roll-on/roll-off carriers for automobiles, and refrigerated ships. By the end of 2023, South Korean shipyards seemed to be having trouble meeting their annual targets. "The shipbuilding landscape and its relationship with global trade, focusing on the growth of nearshoring between Mexico and the US" In total, China, South Korea, and Japan account for more than 90% of new global cargo shipbuilding. The increase in new shipbuilding orders is negative for rates, and could also indicate the belief that trade will not be smooth in the coming years. Geopolitical tensions around key trade routes, such as those in the Black Sea and Red Sea, introduce challenges that could continue to lengthen shipping routes as companies seek to avoid conflict zones. Low water level projections in the Panama Canal threaten future transits similarly. These situations help drive the increase in shipbuilding, because longer routes mean more ships are needed to transport the same amount of goods and better development in international logistics. Interestingly, this vibrant long-distance maritime trade has no problem coexisting with the rise of North American nearshoring, particularly between Mexico and the US. Both were each other's main trading partner in 2023 and supports Mexican transportation in general. Nearshoring and the push toward diversification of trade networks may not mean a reduction in maritime trade. This transition toward regional shipping complements broader international routes and distribution logistics. Shipbuilding for the end of the decade If current trends continue, the shipbuilding market is projected to experience significant growth by 2030. According to Coherent Market Insights, the global market, valued at approximately $150 billion in 2023, is expected to expand to around $192 billion by 2030. This growth is driven by several factors, including increased maritime trade and the need for more environmentally friendly ships with more storage space as the industry moves toward decarbonization. Asia is expected to maintain its dominance, backed by large production capacities and technological advances. The emphasis on building more environmentally friendly ships, such as those powered by LNG or equipped with advanced emission reduction technologies, will likely also be a significant trend. This shift is partly due to regulatory changes aimed at reducing the environmental impact of the maritime industry. Similarly, market growth is influenced by the expansion of trade corridors and the replacement of aging fleets. The median age of the container ship fleet has increased significantly in recent years. According to a report from the Baltic International Maritime Council in October 2023, the median age of the container ship fleet has increased approximately 4.3 years since 2010, reaching 14.2 years in 2023. "The evolution of the maritime fleet and its impact on global logistics, with a view to Mexico" Now, almost 21% of the fleet is more than 20 years old, and the recommended useful life is generally between 20 and 30 years. The report suggests that the fleet's average age is expected to decrease in the coming years as more ships are retired and new container ships are delivered. In summary, inventory depletion in retail supply chains and the boom in global shipbuilding reflect significant dynamics in global trade and make a constant change in the context of international logistics. China emerges as an undisputable leader in the naval industry, while demand for logistical storage space experiences significant changes in the United States. These developments have important implications for the global and regional economy. In the case of Mexico, the close relationship with the United States and its participation in international supply chains positions it to benefit from these changes. The increase in nearshoring and regional port activity offer opportunities to further strengthen its role as a logistics and manufacturing center in North America. However, they also pose challenges, such as the need to adapt to fluctuations in demand and international competition in the manufacturing and logistics sector. Overall, Mexico is in a strategic position to capitalize on emerging trends in maritime trade and global logistics, as long as it can effectively manage changes in the international business environment and improve Mexican transportation.