![](/sites/default/files/Year%20in%20Review%20Banner%281200x116%29_2022_YIR_2022_3.png)
– Logistics challenges weighed on global economic growth in 2022
– Capacity constraints highlight the need for greater infrastructure investment
– Emerging markets are investing to capitalise on shifting supply chains
– Inflation and high energy prices caused a slowdown in global trade volumes
![](/sites/default/files/Transport_port%20%281%29%20cropped.jpg)
Macroeconomic forces such as inflation, geopolitical tension punctuated by Russia’s invasion of Ukraine and spikes in commodity prices heightened supply chain disruptions in 2022, which included capacity constraints, higher freight costs, labour shortages and port slowdowns.
According to a survey of logistics and supply chain professionals conducted in December 2022, some 71.8% of companies were dealing with supply chain disruptions, while 57.7% were trying to navigate transport capacity shortages. Of these respondents, 93% expected these challenges to continue into 2023.
International trade surged in 2021 as countries reopened from the Covid-19 pandemic’s lockdowns, and this momentum carried over into the first half of 2022. Global trade volume reached a record $32trn for the year, buoyed by high energy prices, according to the UN Conference on Trade and Development (UNCTAD) report “Review of Maritime Transport 2022”.
From the third quarter, however, trade flows eased, with East Asia the only region to post positive trade growth. The World Bank now expects global trade growth to slow sharply in 2023 to 1%.
While a trade slowdown should help alleviate bottlenecks in supply chains, the advent of new strategies to mitigate them – including diversification of suppliers, reshoring, near-shoring and friend-shoring – means that supply chains are still shifting.
This in turn presents opportunities for emerging markets to fill production and manufacturing gaps and develop stronger regional and global trade relationships.
Production gaps
The pandemic was broadly expected to result in unprecedented disruption to the mechanics of most economies, regardless of their size or stage of development. Despite its waning threat to global health, the pandemic’s effects have directly undermined some aspects of the global economy.
Throughout 2022 China’s zero-Covid-19 policy prompted an economic slowdown, limiting manufacturing output and suppressing consumer demand. These policies had ripple effects across emerging markets, especially those whose manufacturing inputs are exported to China.
For the first time in decades, China’s growth forecast of 2.8% in 2022 was set to be outpaced by the 23 other countries in the East Asia and Pacific region, which are forecast to see 5.3% growth.
Since 2020 many businesses and governments have pursued a so-called China+1 strategy, diversifying their production capacity by setting up operations in other countries while still maintaining a significant presence in China.
Perhaps no country has taken stronger steps to attract foreign investment and provide a regional manufacturing and supply chain alternative to China than Vietnam, whose increased exports to the US and other markets have helped stabilise the economy.
Vietnam posted 8% growth in 2022, its highest rate since 2011, powered by 11.9% growth in the logistics sector.
Two trade agreements signed before the pandemic – the EU-Vietnam Free Trade Agreement and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership – laid the groundwork for this positive performance and augur well for the future.
Bangladesh, India, Malaysia and Thailand have also replaced China in global supply chains, underscoring the strength of East Asia’s performance in 2022.
Last year many analysts were predicting that the US would look to Latin America to meet its manufacturing and imports needs closer to home, and trade has indeed increased.
After ranging between $30bn and $35bn in 2021, Mexican monthly imports to the US surged to all-time highs in 2022 of $37bn-41bn. China has even sought to invest in manufacturing facilities in Mexico to skirt US tariffs and cut delivery costs to the US.
Meanwhile, the Community of Latin American and Caribbean States (CELAC), a bloc of 33 countries that includes regional heavyweights such as Argentina, Colombia and Mexico, signed the China-CELAC Joint Action Plan for Cooperation in Key Areas 2022-24, which covers a host of areas including infrastructure investment.
The 43-country African Continental Free Trade Area has also prompted developments in African countries, such as Ghana’s ongoing efforts to establish special economic zones to increase manufacturing capacity and transform itself into a key processor and exporter.
Ports and logistics
As much as global supply chains need a greater variety of manufacturers and suppliers to fill production gaps and increase flexibility, ample infrastructure is required to ship production around the world.
The primary cause of the disruptions and surges in freight rates in 2022 was a mismatch between the supply and demand of maritime logistics capacity. With shipping accounting for more than 80% of all global trade, greater investment is needed in ports, shipping fleets and hinterland connections, according to UNCTAD.
It argues that mitigation strategies such as diversifying suppliers, reshoring, near-shoring and friend-shoring will continue to reshape global supply chains.
Digitalisation is already helping ports and the shipping industry to improve efficiency, streamline the processing of documents through e-documents and electronic payments, and create more abundant information flows in warehouses and manufacturing facilities so that artificial intelligence programmes can be trained to prevent bottlenecks.
The emergence of so-called “smart ports” can enhance international competitiveness, reduce environmental impact and improve the workplace environment.
Meanwhile, the shipping industry has been developing a host of green technologies – from methanol and ammonium to wind – to reduce its carbon emissions. Such shifts could be coupled with investment in digital technologies.
For instance, Baja California and Manzanillo on Mexico’s Pacific coast are being discussed in this light, as the country could channel ample solar and wind power into green fuel centres for the global shipping industry.
Inflation and debt
One of the dominant stories for the global economy in 2022 was inflation, which added extra financial strain amid surging freight rates.
In May the US Federal Reserve implemented its largest interest rate increase in two decades to stem inflation in the US, and its effects have been felt around the globe.
While many emerging market currencies have weakened as a result, proactive measures by central banks have limited the damage and positioned these economies better than in previous inflationary periods.
However, a stronger US dollar makes it more expensive for emerging markets to service existing debt or consider financing new projects, which is contributing to the infrastructure investment deficit in areas where new capital is needed to solve supply chain challenges.
China’s infrastructure investment through the Belt and Road Initiative (BRI) has helped to power growth over the past decade, but the pace of investment slowed during the pandemic.
To help bridge the gap, G7 leaders pledged in June to raise $600bn in private and public funds over five years to finance infrastructure in developing countries and counterbalance the influence of China’s BRI.
New infrastructure projects are also under way that could go a long way towards alleviating pressure on supply chains. For example, the Bioceanic Corridor in Latin America aims to connect the Brazilian port of Santos on the Atlantic Ocean with the Chilean ports of Iquique and Antofagasta on the Pacific Ocean through a series of roads.
Energy trade
Energy – the lifeblood of the global economy – was at the heart of global supply chain disruptions last year.
Since 2021 energy shortages punctuated by Russia’s invasion of Ukraine and Western policies to restrict Russian exports prompted a spike in prices, increased demand and placed additional pressure on logistics.
These trends peaked in May, when the EU announced a ban on seaborne imports of Russian oil. However, both Organisation of the Petroleum Exporting Countries (OPEC) and non-OPEC members increased production so that, by the time the ban was instituted in December, the EU found itself with ample supply thanks to increased cargoes from Africa, Latin America, the Middle East and the US.
Members of OPEC and other allied oil-producing nations, collectively known as OPEC+, cut production in September as global demand softened. Underscoring oil’s volatile commodity cycle, demand is expected to rise in 2023 as China and others return to full economic productivity, with Goldman Sachs forecasting that demand could rise by as much as 2m barrel per day.
While renewables remain a key area of growth in the energy sector, many of the related supply chains are less developed than their conventional hydrocarbons counterparts. Moreover, these green technologies involve a panoply of critical minerals including copper, lithium, nickel, cobalt and rare earth elements, and require energy- and labour-intensive production methods.
As a result of the additional steps of manufacturing components, assembling them and shipping final products, as well as China’s dominant position across these supply chains, the sector faced headwinds in 2022.
International prices for lithium and cobalt have doubled since 2020, while those of copper, nickel and aluminium rose by around 25-40%. Prices for battery-grade lithium carbonate in China hit an all-time high of $74,475 per tonne in October, eclipsing the record set one month earlier.
Global giants Siemens and GE have both stated that soaring mineral prices, inflation and supply chain disruptions are hurting profitability.
Several emerging markets invested in these key industries in 2022, including Indonesia, which announced plans in January 2022 to establish a $4bn industry for polysilicon, a key raw material in the production of solar panels.
The demand for solar photovoltaic panel production is set to grow by 150-400% from 2021 to 2030, according to the International Energy Agency’s July report entitled “Securing Clean Energy Technology Supply Chains”.