In a recent speech at the European Banking Congress in Frankfurt, Christine Lagarde, President of the ECB, warned that Europe is facing a series of common challenges which she characterised as the “three Ds”: deglobalisation, demographics and decarbonisation.

She said, ‘There are increasing signs that the global economy is fragmenting into competing blocs. We are approaching a long-anticipated demographic tipping point: in the euro area, a continuous decline in the working age population, so those aged 15 to 64, looks set to begin as early as 2025. And the impact of climate disasters is increasing every year, as is the need for climate action.’

She went on to say, ‘As new trade barriers appear, we will need to reassess supply chains and invest in new ones that are safer, more efficient and closer to home. As our societies age, we will need to deploy new technologies so that we can produce greater output with fewer workers. Digitalisation will help. And as our climate warms, we will need to advance the green transition without any further delays.’

Her reasoned discussion of the problems facing Europe – albeit in the context of banking regulation – shines a light on some of the challenges facing the supply chain industry. The first ‘D’ – deglobalisation – relates very clearly to the fracturing of the international trading system, a process which started after the Great Recession of 2008 and which has been accelerated by the impact of the Covid crisis. Although not mentioning re-shoring or ‘strategic autonomy’ specifically –  the latter phrase favoured by French president, Emmanuel Macron – this is clearly in her thinking. Her use of the word ‘safer’ suggests a positivity for the new paradigm which is not universally shared. The German government is very clear on its opposition to any form of de-coupling or de-globalisation.

Her second ‘D’ – demographics – is also very relevant to such a labour intensive industry as logistics. Millions of workers are presently employed either as truck drivers, warehouse operatives or in the shipping, air and rail industries and shortages are already endemic. Technologies are surely on their way, as Lagarde refers to, and will eventually lead to a reallocation of labour from logistics to sectors where humans are not so easily replaced. Warehouse robotics and port automation are technologies leading the way in this respect. Fully autonomous and driverless vehicles, on the other hand, have a much longer time horizon. In any respect, regardless of the development of the technologies, elimination of jobs is likely to be highly contested strongly by labour organisations.

Her final ‘D’ – decarbonisation – is also proving problematic despite her wish that the green transition advances ‘without any further delays’. There is little sense that sufficient progress is being made towards meeting the targets which the EU and national governments have set. In fact, the cost of ‘net zero’ is increasingly a political issue in itself, both domestically and on an international basis. The European Commission’s recent announcement that it will be looking into the imposition of higher tariffs on the import of Chinese electric vehicles due to unfair subsidies will do nothing to encourage take up of green fuels. The Chinese government has already accused the EU of pursuing protectionist policies, with this latest argument adding to ill will caused by disagreements over the Carbon Border Adjustment Mechanism (CBAM) and the Emissions Trading Scheme (ETS), to name but two.

Lagarde’s speech argued for a European version of the US Securities and Exchange Commission as well as a unified stock exchange to fund the investment needed in order to meet the challenge of her ‘3Ds’. Her view is that government funding on its own will not be enough. Whether or not EU member countries agree with her solution is yet to be seen. What is clear is that over the next ten years the logistics and supply chain sector – as with many others – will experience an intense period of what Lagarde could have called her fourth ‘D’ – that of ‘disruption’.

Author: John Manners-Bell

Source: Ti Insights

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