Logistics within the United States and abroad

Topic: The Economic Importance of Logistics

Due in part to globalization, logistics has become an integral element for business operations around the world. As a result of improvements in technology, business transactions can occur from anywhere in the world. These transactions often require a comprehensive logistics program to fulfil the high demand for consumers around the world. Likewise, improvement in technology has increase the manner in which online transactions and e-commerce platforms emerge. Finally, the rise in the middle class in many develop markets has created an influx of demand for goods and services. Many of the products will need to be shipped over large geographic regions further requiring heavily investment in logistics platforms around the world. These logistics investments have a very profound impact of the overall economic prosperity of the world. From an investor perspective, individuals are now creating fulfillment centers which have become a very valuable portion of the logistics supply chain. My publicly traded firms within the logistics industry have provide patient investors with very large amounts of capital appreciation in their logistics holdings. Likewise, these investments encourage further economic development through the creation of high-quality jobs for local residents. This creates economic development as it further bolsters the purchasing power of the middle class who can spend their discretionary income on other goods and services. From an economic perspective, logistics can be help provide seamless service to further encourage consumer spending. E-commerce giants such as Amazon and Alibaba continue to perfect methods in which to delivery products seamlessly through a much more robust logistics framework. In the case of Amazon, products can be shipped within 2 business days through a extensive and comprehensive logistics network. Alibaba is using autonomous robots within its own logistic operations and has aims to provide same day deliver to a vast majority of China’s population by the year 2030. Each of these economic benefits accrue to a large apart of society creating a virtuous cycle and a win-win for all stakeholders involved. From a consumer perspective the are able to leverage the logistics framework of businesses to receive goods and service in a much more rapid fashion. Business are able to use logistics to not only ship goods more efficiently, but they are also able to use data analytics to better automate the supply chain and anticipate future demand. Finally governments benefit through higher collection of sales tax, tariffs, and other duties that can be redeployed back into society to improve the quality of life of citizens (Ziaul, 2017).

To begin, the economic importance of a logistics is becoming increasingly important. For one, logistics continues to account for a growing share of country gross domestic product. In the United States alone, logistics accounts for $1.6 Trillion of GDP or roughly 8 percent. As logistics becomes to be an increasing portion of GDP, it’s economic importance also rises. Here, the logistics sector has a much larger impact on economic metrics such as inflation, interest rates, productivity, and even energy costs. Likewise, logistics in now become a source of national competitive advantages for many of the nation’s largest economic powers. This is underpinned by very large secular trends occurring around the world such as the need to shorten product life cycles, increases in global competition, and higher consumer demand (Sharipbekova, 2018).

Specifically in America, logistics has the vital role of better connecting American consumers with global providers of good and services. Logistics in America also looks to integrate all activities within the supply chain to better improve the overall consumer experience. This integration includes connecting global supply chains, with proper information sharing, inventory management, and transportation. Within the American economy logistics has been an area of significant growth due to rapid emergence of e-commerce. According to the department of labor, the freight and logistics market in America is scheduled to grow at compounded annual growth rate of 3.2% from 2020 to 2025. This is slightly ahead of overall United States GDP growth of 2% to 3% over this same period. A large portion of this growth will be driven by the overall growth of e-commerce within the United States, requiring higher levels of logistics investment (Jyri, 2011).

Within the United States logistics market, an very interesting dynamic is currently underway. As noted in the paragraphs above, strong consumer demand for goods and services has required investments in logistics platforms. However, brick and mortal retailers are actually declining in the United States due in part to the shift in consumer purchasing behavior. According to CBRE, retail square footage is expected to decline by 20% by 2025. This reduction in retail space has been accentuated by the decline of retailers such as JC Penny, Sears, Men’s Wearhouse, and other prominent retailers. This space has ultimately been filled by logistics operations who need the well-located space to further enhance their value proposition to consumers. Here, many of the now defunct retailers of often occupied the best real estate locations in America. These locations where heavily centralized, strategically located, and benefited from strong demographic trends. As these retailers went through the bankruptcy process, these spaces where occupied by prominent logistical operations. As of this writing, many e-commerce companies such as Amazon are using these empty retail locations to establish fulfillment centers, warehouses and other logistics operations to help improve cycle times for consumers. This transition of square footage will be used to provide value enhancing services such as same-day delivery while also capitalizing on the “buy online, pick up in store” trend.

Within the United States logistics market, technology has also created unique and interesting opportunities within the sector. For rapidly emerging trends in the logistic sector of the United States and internationally is data analytics and automation. In particular China is making very strong progress in using automation as a means of improving the entire logistics supply chain. For example, Alibaba, an e-commerce giant located in China, is using technology throughout its entire logistics operations through data gained from its heavily utilized e-commerce website. Currently Alibaba has 1.1 billion users on its platform. These users providing very compelling business insights and data to feed the logistics platform. Through this data, Alibaba can use artificial intelligence to predict future increases in demand. The company can then proactively notify suppliers to help lower bottlenecks and other supply chain issues prior to their occurrence. This ecosystem will be further enhanced as more Chinese start to enter the middle class. Unlike the United States market, many international logistics operations are still developing their overall infrastructure. As more of the countries residents enter the middle class, the likelihood of needing additional logistics infrastructure will be needed. The need to accommodate rising demand is what differentiates many of the emerging countries from the United States which is much more mature (Normaz, 2015).

For countries such as China and India, automation will also become a very important element with the logistics systems of the respective countries. The primary catalyst for this is their sheer amount of people who will require services. China currently has 1.4 billion people with a GDP of roughly $12 Trillion. Of this figure 14.6 of China GDP is related to logistics. America however has roughly 330 million Americans with a GDP of $19 Trillion, of which 8% is dedicate to logistics. The need to service the needs of 1.4 billion people in China will require large commitments of capital that ultimately will need to leverage automation to properly service the large populations. In China for example, Alibaba is already using autonomous robots to deliver packages. On Sept. 28TH, Alibaba the companies autonomous driving division delivered 1 million packages throughout China just a year after its launch. 200 of the robots have carried parcels to more than 200,000 consumers in 52 cities across 22 Chinese provinces through its Xiaomanlv fleet. By 2025 the company expects to deliver 1 million packages a day by increasing its robots from 200 to 10,000 throughout the logistics network (Sevgi, 2017).