The Blocs building China’s Belt and Road

By: | Issue #670 | at 10:00 AM | Channel(s): International Trade  

By Terry Gidlow, CEO, WaterFront Maritime Services, Special to the AJOT

Many of the seemingly stable relationships between countries, between traditional trading partners and the communities that rely on well-established political and economic ties, today, seem somewhat less certain than they may have done in years gone by. In part, this is the result of a popular news agenda placing so called ‘trade-wars’ on the front page. The mass media are currently reporting with increasing frequency on these now more ‘open’ fractions largely because the rhetoric is now easier to sensationalise.

This is not to downplay the serious implications of punitive or protectionist trade measures, by any means. It is simply worth pointing out that global trade has always been a beast that oscillates and transforms on a regular basis. Given the current climate, we could all do well to remember that change can also be a good thing, if the response is constructed carefully.

The emergence of China’s Belt and Road Initiative (BRI) is a perfect case-in-point, as the list of countries included in this mammoth trade project continues to grow and the breadth of its influence deepens. Most recently, the formal offer to include the Community of Latin American and Caribbean States has taken the BRI even further and wrapped within it two major trading blocs – The Pacific Alliance and the Common Market of the South, known as ‘Mercosur’. Through the extension of the BRI, the relationship between China and Latin America has just moved to a new level.

Laying the Foundations

When it comes to the longer-term shifts in global trade, China has placed itself behind the wheel, and it is steering its course across almost every continent through its Belt and Road Initiative. The initiative, at its heart, is a monumentally ambitious global infrastructural development programme seeking to bolster China’s links with and access to the rest of the world. The Chinese Government’s original plan was to rollout more than 900 projects, throughout 60 countries and with a budget surpassing US$1 trillion. It is a proactive soft-power play, the likes of which we have not seen for a generation or more.

Over the course of several decades the BRI will provide a vastly improved overland ‘Belt and Road’ route connecting Europe and the Middle East to China through Central Asia, across China’s hinterland and onwards through Southern Asia. The ‘Maritime Silk Road’ simultaneously seeks to connect China, South East Asia, India and Africa. In early 2018, Latin America and the Caribbean States were formally invited into the fold, when Chinese Foreign Minister Wang Yi formally invited the Community of Latin American and Caribbean States (CELAC) to join the initiative. He did so whilst also promising approximately US$250 billion in Chinese investment for infrastructure and related projects across the region over the next ten years.

Perhaps more importantly, the offer to wrap Latin American and Caribbean countries into the Belt and Road Initiative was made at a time when the existing trading relationships that have long provided the blue-print for trade into, across and out of Latin America is under significant strain (both internally, and externally). The United States – the region’s main trading partner – is retreating from key trade agreements, namely the Transpacific Partnership (TPP) and NAFTA agreements upon which Latin and South American countries so heavily rely.

The situation is complicated because the two largest trading blocs within Latin America - The Pacific Alliance of Chile, Colombia, Mexico, and Peru; and Mercosur, which comprises Argentina, Brazil, Paraguay and Uruguay - are affected differently by their own bi-lateral trade requirements and treaties, as well the changing trade policy of the United States. Each of the countries within these two quite distinct blocs also has vastly different dealings with China in terms of import and export of commodities and resources, whilst also having to compete openly with their neighbours and allies for the export of similar resources.

China is already the top trade partner for Brazil, Chile and Peru, but the prospects for the wider region are quite considerable and provide a positive indication for commodity markets for longer-term stability in the region. According to the Economic Commission for Latin America and the Caribbean (ECLAC), China is currently also the second main source of imports into the region, and overall third main export destination. China’s offer to include all Latin America and the Caribbean states in the BRI marks an unprecedented development precisely because it should provide the incentive and impetus for all nations to work more collaboratively.

Building the Frameworks

While the positive impact of increased Chinese investment in critical transportation infrastructure across Latin America may be a while in the making, there is no denying that improvements are required, and there are benefits to reap. According to a recent report in The Economist in March this year, more than 60% of the region’s roads are unpaved, compared with 46% in emerging economies in Asia and 17% in Europe. The same report highlighted that across Latin America, losses of electricity from transmission and distribution networks are among the highest in the world, which is a very common cause for supply chain issues, and a serious impediment to the ability to compete worldwide.

As a global port agency business with a local representation in more than 400 ports across more than 60 countries, at WaterFront Maritime Services (WaterFront) we are critically aware of the impact that unreliable infrastructure across the region has on the ability to move bulk commodities efficiently and cost-effectively. This is why having people on the ground in key ports, with reliable facilities and access to real-time data and intelligence is so important. Our network of stringently vetted and highly reputable Network Partners specialises in the handling of dry and liquid bulk cargoes and each brings with them unrivalled local market expertise and connections.

This is key to ensuring we know how to circumvent common issues and problems and also have the ability to make changes on the ground should problems or delays occur. Our partners in the region include Unimar in Brazil, Ultramar in Chile, Transtotal in Peru, Remar in Ecuador, C.B. Fenton in Panama, Naves in Colombia and Alpemar in Argentina. This network structure enables us to anticipate problems and make tangible improvements across the supply chain.

For example, the recent Truckers Union strike in Brazil virtually paralysed ports, and caused significant delays along roads, which already suffer from frequent and severe bottlenecking. To counter this, using real-time intelligence we can build-in precautionary measures for avoiding bottlenecks further up and down the supply chain and identifying ways to counter bureaucratic delays in port, which can often be lengthy and complex. We can then also draw on our significant network of more than 25 of our proprietary offices in China, and 352 offices across the rest of the Middle East, Africa, Asia, Europe, and North America to see that cargo is safely and efficiently handled at the other end.

Moving in a New Direction

The core aim of the Belt and Road Initiative is to better connect China and Latin America across the Pacific Ocean through a network of ports, terminals, industrial zones, storage facilities and the adjoining logistics infrastructure, facilities and communities that connect them. Naturally, this means that the impact will be felt across the maritime and logistics industries worldwide, given that the way in which goods and services are accessed, moved and utilised across the globe will inevitably shift.

Thankfully, the shipping and logistics industries have become increasingly adept at adapting to changes in supply and demand scenarios. These industries are now better equipped to respond to evolving rules and regulations, better placed to try and make the most of shifting opportunities and more resilient against threats to their own business and service delivery.

At WaterFront, we believe that the BRI will be a once-in-a-generation shift in global and political trade dynamics which has the potential to bring great benefit to many. While it will bring with it significant change, opportunity and challenge, there will however, be some constants. The need to maintain lean supply chains, to operate efficiently and cost effectively to compete will remain the same. The ability of the port agent to support this will also remain the same.

American Journal of Transportation