International trade, transport infrastructure, and COVID-19

Dr B K Mukhopadhyay

(The author is a Professor of Management and Economics, formerly at IIBM (RBI) Guwahati. He can be contacted at m.bibhas@gmail.com)

Dr. Boidurjo Rick Mukhopadhyay

(The author, international award-winning development and management economist, formerly a Gold Medalist in Economics at Gauhati University)

The pandemic not only did place health systems under unprecedented and somewhat unmanageable stress to save as many lives as possible, but COVID-19 is also equally a humanitarian crisis on a global scale. The virus is worsening consequences as it continues to spread in lower-income countries with weaker healthcare systems. On the international trade side, however, two factors that determine continuity are cooperation and trust – for example, whether the market can ensure supplying essentials, and also that countries will not impose export restrictions, in addition, that imports do not pose any health risks. Naturally, both the factors are in jeopardy since the pandemic scaled itself since Q1 of 2020. Leaders for businesses, domestic or international regardless, have to navigate through a broad range of interrelated issues starting from ensuring their employees and customers feel safe, shoring up cash and liquidity, to reorienting operations and managing partnerships (private-private, public-private) under the circumstances.

COVID-19 simply sped up what was already coming for the businesses, so it makes little sense that the businesses are going to be a 'new' reality. Research suggests that looking at the future of work, 'automation at work' was already on its way before the pandemic and in fact, the latter only turbo-boosted the timeline of the changes that businesses will experience and introduce in the market. For example, labour is no longer 'the most important factor of production, in several sectors, since automation and technological displacement have accelerated significantly since the last decade. Also, the other thing that didn't help international trade recently was the increasing focus on glocalization, and 'made locally' strategies in addition to Governments' more nativist regulations. Prioritising local investments and also reskilling domestic labour, especially digital literacy - changed production decisions, supplier selection, partner choices and trade.

In regards to the pandemic effects on business' operational resilience and customer relationship, we saw a mixed bag of outcomes. For example, in the banking sector - the use of robotics solutions and AI calling the shots for customers online might have improved customer experience on the one hand, while increased costs and unpredictable availability of infrastructural resources for the financial sector to fully reap the benefits of applicable cloud technologies in its truest form. The path to digital transformation, therefore, called for partnerships and collaboration within the fintech community, domestically and internationally. The leaders being JP Morgan Chase, Bank of America and Citigroup.

Further, for trade, certain sectors have experienced severe impediments and operational barriers since early 2020, in particular the airlines, shopping, pharmaceutical logistics. For example, cancellation of flights during the lockdown and restricted travel period impacted the availability of air cargo, and therefore urgent shipping of essential goods went up and consequently their price levels which lead to the increased price of air cargo. Research by OECD shows that several key shopping ports experienced year-on-year drops in cargo between 10-20 per cent in February 2021. However, continuous changes in port protocols and quarantine measures over the months managed to cope with the situation, e.g., having 'green lanes' at entry ports to speed up the cargo shipments. Another practical challenge that crippled the shipping and cargo industry last year was that a significant number of large shipping containers were stuck in Chinese ports which led to an increase in the price of containers subsequently, affecting the price of cargo and food prices.

At the same time, certain sectors have done quite well during the pandemic, in particular multinational ones who have partnerships with other global firms. For example, the $1 trillion per-year IT services companies in the global market whose growth is projected to be 6 per cent in 2021 and 2022. E-businesses or E-Tails benefitted from the pandemic as it drove online shopping, for example, Amazon's reported $108.5 billion in sales in the first three months of 2021, up 44 per cent from Q1 of 2020. It also posted $8.1 billion in profit; an increase of 220 per cent compared to Q2 of 2020. The company, like a few others like eBay, Alibaba, etc. relies heavily on global procurement and logistics partners, and the shipping/ airlines cargo industry.

A bit more on Amazon's soaring success during the pandemic... Amazon improved their operational efficiency since they had their warehouses closer to full capacity, delivery drivers (in the gig economy) have made more stops on their routes, with less time driving between customers. And as a recent report by the NYC shared, the number of items Amazon sold grew 44 per cent, while the cost was up by only 31 per cent.

The other industries that looked up during the period in regards to building more international trade and partnership agreements are the automotive industry, in particular E-Vehicles. A study by McKinsey illustrates that the growth in this E-Vehicle market was so positively motivating that now the European Union and the United States aim for an electric vehicle (EV) share of at least 50 per cent by 2030, while several other countries now aim for accelerated timelines for sales bans on internal-combustion-engine vehicles in 2030 or 2035.

On the FDI side, things have not been sunny either. The pandemic stamped significant distress on foreign direct investment last year. The lockdown and related bans consequently delayed implementation of ongoing investment projects and also shelving of new projects, reduced foreign aff¬iliate earnings of which normally a signifi¬cant share gets reinvested in host countries. FDI is projected to decrease further in 2021 and only begin to recover in 2022 at the earliest. Not only were the announcements of green¬field projects postponed and their value also dropped sharply (negative 58 per cent) in transition economies, but also several mergers and acquisitions were either temporarily suspended or cancelled. And as a report by the UNCTAD reported that regulators in the USA and EU delayed approval processes for some planned mega-mergers. Developed economies took the biggest hit by a decline of FDI by 75 per cent. In developing economies, FDI decreased by 16 per cent, it has been 28 per cent lower in Africa, 25 per cent in Latin America and the Caribbean and 12 per cent in Asia, while resilient investments continue to soar in China.

To conclude, how can the economy and the hardest hit sectors in particular recover from the past 18 months. All research points to the food, travel and entertainment sectors are the hardest hit, but we also have education, SMEs, international development, and consulting sector that also suffered - and for some, irrecoverably. The pandemic put the capacity of industries to adapt, the resilience of supply chains, training and development of workers to test. Global companies have experienced the brunt at the local level, and therefore several 'glocal' initiatives were initiated for surviving and business continuity under the circumstances. Also, at the core, we need to realise how the pandemic impacted STEM research while recognising the unequal effects of the crisis on research and development (R&D) across sectors, investment and adoption of digital technologies, and also thereby evolving the nature of the openness, inclusiveness and agility of innovation ecosystems.

While the recovery is on the way particularly in the trade industry, for example, UNCTAD reports that world trade's recovery from the COVID-19 crisis hit a record high in the first quarter of 2021, increasing by 10% year-over-year and 4% quarter-over-quarter. This recovery, however, to note is largely led by the East Asian economies, China in particular where investments and strategic moves (mergers and acquisitions, FDI amongst others) soared during the past year. So, this rebound is led by a boost in the value of trade in goods but trade-in services remain substantially below averages. Therefore, both at the operational level, workforce management, and also partnership agreements, changes in the cargo shipments and associated protocols (80% of international trade of goods is carried by sea), new network formation (during and post-pandemic), and knowledge building – businesses and Governments should strategise on reducing overall restraints from trade protectionist policies while building supportive macroeconomic business environment and fiscal conditions, and not simply fiscal stimulus packages that may work in developed countries but not quite in emerging and transition economies.