For over two decades, supply chains and trade networks have skewed consistently in the direction of globalisation.
It was cheaper to farm, harvest, manufacture, and ship goods from overseas than it was to make them close to home. In countries with developed economies, higher wages and material costs, as well as stricter regulations, have been pushing corporations to look farther afield since the 1990s.
Now, however, the tide appears to have turned for this decades-long trend. According to a new report by the Dubai Multi Commodities Centre (DMCC), the future of global trade looks a lot less globalised and a lot more local.
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“We are entering a new, digital-driven era of globalisation,” wrote Peter Vanham, former Deputy Head of Media at the World Economic Forum and Executive Editor at Fortune. Writing in January of 2019, Vanham couldn’t have known at the time that the clock was already ticking down for globalisation’s dominance as an economic ideology.
The COVID-19 pandemic threw global supply chains into a state of system shock. Now, the effects of the pandemic are finally fading, and global supply chains are sitting in a relatively good place. Global trade is expected to recover from last year’s minor contraction to grow 2.6% in 2024.
However, some bells can’t be unrung. We are living in an age of more frequent disruptions, geopolitical tension, and a worsening climate. According to the DMCC, supply chains are still facing multiple headwinds stemming from geopolitical and macroeconomic risks. These include economic slowdowns in China and Europe, persistent inflation and higher-for-longer interest rates, and continued commodity price volatility.
As a result, the report predicts supply chain managers will respond with an accelerated shift towards regionalisation defined by deeper bilateral and multilateral partnerships.
“The world order is causing supply shortages, rerouting cargo, and adding costs to consumers,” commented Feryal Ahmadi, Chief Operating Officer at DMCC. “Businesses and economies are prioritising resilience in the years ahead given the pressures they face today. This is also creating new regional blocs and trade corridors that are heavily indexing on technological prowess given the importance of semiconductors and AI development to businesses around the world. Trade hubs that get this piece right will find themselves at the nexus of global trade flows for the coming decades.”
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