Globalization 4.0 and the New Logistics

Today, I'd like to discuss a new phase of global trade and advancements in logistics that are helping to open opportunities for exports and growth around the world. I call this trend Globalization 4.0.

Let me give you some context. Global trade dates back to ancient times. And you could define Globalization 1.0 as the long era of trans-Atlantic trade that started in the late 19th Century and continued through the Cold War.

Then, the Berlin Wall fell, and markets opened in the old Communist bloc. The emergence of new technologies such as the Internet and mobile phones also boosted global commerce during this decade of growth - an era that also saw new trade agreements and falling tariffs around the world. This time during much of the 1990s was globalization 2.0.

In 2001, terrorist attacks slowed the march of globalization, but the world continued to flatten. China entered the World Trade Organization, and India became a technology and services powerhouse. Along with resource rich countries Brazil and Russia, the so-called BRIC economies, experienced dramatic growth.

Author Thomas Friedman described this era as Globalization 3.0. In 2005, when his book "The World is Flat" was released, the United States was a big driver of global growth. U.S. consumers shopped till they dropped by leveraging rising house and asset prices. Imports clogged U.S. ports and warehouses, and prices for commodities and raw materials spiked.

Then the financial crisis gave us an economic body slam. Major U.S. and European banks imploded in 2008. Global trade collapsed-but not for long.

Trade for the past year has boomed and is now approaching pre-crisis levels. Why the swift V-shaped recovery in global trade? For one thing, developing nations made trade agreements with each other and lowered tariffs. Emerging economy business leaders responded by pushing hard into new markets and leveraging new technologies.

The result is evident in Asia where trade is growing rapidly. Export-focused economies elsewhere such as Germany are also doing well. For those countries geared toward trade, the future is bright.

What's different with today's boom in trade is that the United States is no longer a magnet for goods. Now, in the wake of the financial crisis, the pull is greatest in Asia and emerging economies. With Globalization 4.0, the gravity of trade has shifted.

The new competitive advantage of logistics

Another part of the story is logistics, which underpins all global trade. By logistics, I'm referring to the art and science of moving something exactly where it needs to be, exactly when it needs to be there. Logistics done well means that sellers more efficiently connect with buyers. And that means more profitability and growth opportunities.

According to some estimates, the logistics industry amounts to more than $3 trillion - similar to the economy of Germany and much bigger than the $80 billion package delivery industry.

UPS is a global leader in logistics, and at any moment our business manages more than 2 percent of global GDP. We are the only logistics provider with major capabilities in North America, Europe, and Asia.

International business is increasingly important at UPS, and I expect this trend will continue with new technologies and processes for moving goods efficiently across borders. In fact, logistics is the key to ensuring that global trade continues to expand and thrive. And logistics is a rapidly changing practice.

Under the old logistics, firms tended to develop capabilities internally, and shipments often got bogged down in paperwork as they moved through different networks and across borders.

Under the new logistics, shipments are traced electronically, and businesses have clear transparency of product movement. Large businesses can outsource logistics costs and tap into a single global network. Small businesses can compete in new markets with access to the same UPS platform that moves goods to more than 200 countries.

New Logistics is a powerful tool that supports entrepreneurs, export growth, and global economic prosperity.

Not long ago I was in Vietnam, a country where new ideas and technologies are spreading like wildfire. In Hanoi, the streets were buzzing with business people on motorbikes, and you could sense the entrepreneurial spirit.

The business people I spoke with in Vietnam were hungry for new global markets. And when I brought up logistics, they were thrilled by the power of the technology in the palm of their hand. They used their cell phones to do most everything, not only to connect with customers but also to clear paperless customs into new markets, or check tracking shipments. Now, I can see why the UPS mobile app is one of the most popular business tools on the iPhone.

Another example of how technology is lowering global barriers is AliExpress. This China-based Web site matches buyers and sellers in a global B-to-B marketplace with wholesale prices. AliExpress is powered by UPS logistics, which helps their customers compete globally.

Now, I don't want to leave you with the impression that trade barriers have disappeared. Global shipments are still subject to changing anti-terrorism rules and trade requirements. But, along with our competitors, UPS provides free risk assessment technology to international customs agencies. In addition, we continue to develop our proprietary technology for electronic customs and other ways to speed global shipments.

With our extensive capabilities also comes responsibility. In particular, I'm passionate about the power of logistics to respond to natural disasters. For instance, earlier this year, UPS brought the Salvation Army handheld Trackpad technology to track relief supplies being distributed to victims at a camp in earthquake-ravaged Haiti. Also, UPS has trained US employees as part of the UN's Logistics Emergency Teams to respond to disasters.

Our commitment to humanitarian relief is a growing and important part of our vision to enable global commerce. And logistics is the critical link to meeting the needs of the suffering.

Developing nations and trade

People everywhere want to build better lives, and in more and more places prosperity means going global. The rise of the middle class in a few large developing nations is driving growth in trade. Every year, millions of new consumers join the global economy.

Just this year, China recently replaced Japan as the #2 world economy. How? To begin with, the government invested heavily in infrastructure and exporting. Entrepreneurism was fostered, and the Chinese government set manufacturing and trade at the heart of its political agenda. To support this growth, UPS has its new intra-Asian air hub in Shenzhen, China and is also continuing to invest heavily in China's logistics infrastructure.

Transportation infrastructure investment has been the key to building manufacturing capacity and prosperity beyond the traditional trade centers. Much of China's manufacturing is concentrated along its east coast. The government is building new highways to open western provinces to development and bring even more of China's vast population into the global economy. Contrast that with the United States' crumbling transportation infrastructure that hasn't seen a major influx of investment since the 1960s.

With our growing presence in Asia, UPS has a unique window on China's astonishing transformation. Our tracking data show the value of goods leaving the country is up even more than the volume. We're seeing a shift from bulk freight to more express packages containing high-value goods.

I'm optimistic about growth of inter-Asian trade as nations like China and Taiwan set aside old political rivalries to open up new avenues for economic engagement.  I have been impressed by the foresight and courage demonstrated by several Asian nations as they build their export base and act toward long-term economic growth.

Asia isn't the only region that's doing well with Globalization 4.0. Latin America has solid growth. The countries I believe that have particular promise have at least 80 million in population, export-driven economies, and are open to global investment. These include what I might call the new growth tigers of Turkey, Mexico, and Vietnam, which I already mentioned.

Economic nationalism in developed countries

But as export-oriented nations drive more global growth, other countries - especially in Western Europe and North America - are pulling inward. With high unemployment and slow growth, major developed nations are threatening to raise barriers to commerce. I would argue their economies are suffering as a result of this sentiment toward economic nationalism.

The United States is a case in point. Troubling signs of protectionism include new tariffs on Chinese aluminum. Such tax increases often provoke retaliation, hindering U.S. exports, and increasing the risk of a trade war in which everyone loses.

Major U.S. trade agreements (South Korea, Colombia, Panama) are stuck on the docket. A few industry-specific disagreements (agriculture, cars) are blocking legislation that would boost U.S. trade and growth.

I understand why some people feel threatened by global competition, but I believe those fears are misguided. First of all, many of the nations that fear trade are highly competitive. Their workforces are productive, and they excel at making high value products.

Also, trade helps consumers through lower prices, and it pushes domestic businesses to become more productive and efficient. Trade also clears the way for new export related jobs. Every 22 packages that come into the U.S. from overseas supports a job at UPS.

The bottom line is our country's recent economic performance has been poor, and one reason is lack of trade. More specifically exports.

Jobs and exports in the U.S.

This past summer, UPS CEO Scott Davis joined the President's Export Council. He will lead the group's export, promotion, and advocacy committee and offer his views on how the U.S. can revive its economy by selling more in overseas markets.

This policy group strives to double exports within five years and create two million jobs. This goal is ambitious, but Scott and I believe it's attainable.

For one thing, many businesses may not know about the U.S. Commercial Service. This arm of the U.S. Commerce Department provides valuable support to firms that are trying to reach out and sell to customers in other countries.

I believe that many U.S. businesses that don't export could be successful in overseas markets. But first they have to overcome their fear of the unknown, research and identify opportunities, and then execute on a well-conceived strategy to go global. 

Today, only one percent of U.S. small and medium businesses export, and much of this activity is to just one country: Canada. By contrast, more than half the small-to-medium sized businesses in Germany sell to other markets. Many UPS customers have increased revenue by exporting to just one more country and then using that experience to expand into other markets.

The U.S., with its many economic advantages, remains the world's largest market. Yet more and more shipments are bypassing this country. That trend does not bode well, but we can do something about it.

The most competitive nations of the future will pursue trade agreements, build up their transportation infrastructure, and they will pursue innovative ways to boost exports.

In closing, let me say that I believe businesses that are willing to push into new markets around the world will find the conditions of Globalization 4.0 very much to their liking. I expect that trade will continue to grow and spread into new and surprising places and that the New Logistics will go hand in hand with even stronger global growth.