Paris, France 7th November 2019
The relationship between cities and trade has a long history, with many of the world's oldest cities beginning their lives as ports, and the pursuit of trade being a driver of both connections between cities and innovation within cities. The new era of globalisation has seen both a huge growth in sea-borne and air-borne trade and the introduction of digital technologies into freight, logistics, and distribution system. These technologies have enabled a new set of relationships to emerge between cities, trade, and logistics as land use and infrastructure needs of trade activity changes and modernises. This interconnection was explored in detail by a plenary panel discussion hosted by Professor Greg Clark, Senior Advisor, Future Cities & New Industries, HSBC at the bank's recent Cities of the Future 2019 event.
The panellists were:
- Carl Lauron, Founder, BuyCo
- Danny Peeters, Executive Director, Goodman Group
- Jerome Frost, Director & Global Cities Leader, Arup
- Vivek Ramachandran, CEO, Serai
Today's cities play multiple roles in relation to trade. They provide the necessary logistics platforms, services that reduce trade friction, the domestic consumption for traded goods and the digital networks that support all parts of the trade value chain. However, trade also influences the evolution of cities in return. As new trade corridors emerge and existing ones expand or contract, cities on these corridors often follow a similar trajectory.
Growing and declining trade routes
The first discussion area the panel focused on was the symbiotic relationship and the opportunities arising from growing and declining trade routes. One of the most striking shifts noted by the panel was the decoupling of trade from the physical movement of goods, with one of the most dominant new routes actually being the mobile phone. This was particularly evident in the context of 5G rollouts in countries such as China, where the technology was expected to facilitate the development of new ports, both on the coast and inland. Another significant technological theme revolved around how the digitisation of ports might reinvigorate their relationships with their associated cities. This could potentially put ports at the centre of the new digital economy and perhaps even enable cities that had previously been left behind to catch up.
One of the new trade routes that has attracted huge attention in recent years is China's New Silk Road. A common assumption regarding the New Silk Road has been the major impact it will have on cities along its route, as well as East/West trade more generally. However, Carl Lauron of BuyCo observed that it was actually likely to have less impact and was unlikely to account for more than 3-5 per cent of total trade. He also noted trade routes and flows that were declining or disappearing altogether and the effect that this might have. He cited the recent fundamental change in Asia/Europe trade flows, whereby the flow of finished goods from Asia to Europe was no longer being reciprocated by rubbish being sent from Europe to Asia, because Asian countries would no longer accept it. That had obvious implications for European cities and their waste management.
Another factor in the relationship between trade and cities is the change in the nature of trade flows. Vivek Ramachandran of Serai highlighted this point by drawing attention to three examples of these changes and how they might affect cities:
- Growth in services trade is currently 60 per cent faster than that of goods trade, so cities could benefit by placing more emphasis on knowledge industries rather than manufacturing.
- The percentage of GDP globally that is exported is actually falling, having declined over the past decade from ~29 per cent to ~22 per cent. Cities could seek to benefit from this implicit increased local demand, but would need to make infrastructure investment to do so.
- The percentage of trade attributable to labour cost differentials has fallen to ~20 per cent of global trade, which might prompt some cities currently dependent upon cheap labour exporting to encourage more value-added economic activity instead.
One of the major ways in which trade flows can affect cities is in directly driving infrastructure change. Danny Peeters explained how from the Goodman Group's experience this was especially applicable to e-commerce flows. "Logistics infrastructure is undergoing a complete revolution in that e-commerce is driving us to reconsider where we should be located and how we should develop buildings," he remarked. "Historically, we would have focused on the perimeters of cities, but with consumers increasingly expecting shorter delivery times, some 80 per cent of our portfolio is now related to city logistics in inner-city locations."
This shift is driving the development of new logistics facilities in the centre of major cities. These are often in high-rise buildings that are mixed-use developments combining logistics with residential and/or retail centres. It also raises the challenge of convincing local authorities that this sort of infrastructure now needs to be in the centre of their cities and not on the periphery.
Carl Lauron highlighted the significance of CO2 reduction on the relationship between trade, cities and infrastructure. "At present, when you need to move goods inland the logic is that you land the cargo at the nearest port," he observed. "I think that minimising distance model will in time change to one that minimises CO2 instead." This would have two important consequences:
- Major development of low CO2 impact inland transport, such as rail or barges
- Growth of inland ports
The development of new ports and the redevelopment of existing ones raises the critical question of relations between port and city authorities. This can be challenging because the interests of these groups are often not aligned. For instance, a port authority may be looking to a future that may never exist and holding onto land to prepare for that future, while a city may be trying to develop that same land for housing to meet immediate population needs.
However, Jerome Frost of Arup noted that where these tensions could be resolved, the opportunities could be substantial – particularly if the CO2 minimisation model Carl Lauron referred to gained traction. "Under these circumstances, ports in some of the more rundown post-industrial parts of Europe could gain an edge, because they are closer to key markets from a CO2 perspective," he remarked. "That could support regeneration and reactivation of some of their port activity."
A further opportunity for ports more generally is their digitisation, so that they can become part of a service chain, rather than just an industrial or logistics chain. With that in place, ports will also be competing for the same talent pool that many other industries are competing for through digitisation opportunities. Combining digitisation and CO2 optimisation would open even more opportunity because ports would then be able to start forming linkages with new industries and economic activity, and in doing so take advantage of the fact that they already have the land to support them.
How to avoid being left behind
During the plenary panel discussion, the audience posed a number of additional questions. One of these related to how cities and ports could avoid being left behind by being unable to meet the fast delivery needs of e-commerce.
One of the first potential issues/opportunities the panellists identified was delivery fragmentation. A single consignee might have ordered multiple items that currently necessitate multiple separate deliveries, with obvious negative implications for infrastructure capacity and emissions. This could be addressed by having some form of consolidated transport system within city centres whereby all consignments were centralised at a single hub. Multiple deliveries per consignee could then be aggregated into a single delivery, which would reduce both CO2 emissions and infrastructure pressure.
Skills provision was another point the panel highlighted, if ports and cities were to thrive. Many cities still do not provide the necessary skills for supporting the digital sectors, so there is a major opportunity for port cities to invest in these through their universities and higher education facilities. However, in order to retain people with these skills (or attract them from elsewhere) cities also need to invest in their 'livability'. That includes areas such as housing, social services, recreation and other civic provisions that may not come cheap, but are essential when cities are competing for talent that can move all over the world.
Those cities/ports that combine this skill-centricity with optimal usage of 5G technology will be in a particularly strong competitive position. At a technological level, they will be skipping a generation of hardwiring and moving to far cheaper and faster technology, but in conjunction with the right citizen skill sets they will be able to maximise their knowledge return on ever larger data sets.
One of the key points that emerged during the panel discussion, was that while the interconnection between trade and cities was important, so too was the connection between cities and ports. Relations between port and city authorities could spell the difference between the success or failure of either or both. A collaborative approach to infrastructure, skills and technology could see both parties benefiting from the opportunities of e-commerce and trade more generally, with cities such as Hamburg, Rotterdam and Singapore being cited as exemplars of this. A lack of it could result in both port and city joining the ranks of the left behind.
Carl Lauron, Founder, BuyCoIn 2015 Carl founded BuyCo to help importers and exporters simplify, optimise and secure their ocean shipping operations through digital innovations. This is achieved through a collaborative SaaS solution interfacing importers and exporters with shipping lines, forwarders, and any other supply chain participants.
Danny Peeters, Executive Director, Goodman GroupDaniel is an Executive Director of the Goodman Group. He has oversight of Goodman’s European and Brazilian operations and strategy. Daniel has been with Goodman since 2006 and has 17 years of experience in the property and logistics sectors.
Jerome Frost, Director & Global Cities Leader, ArupJerome Frost is Arup’s Global Cities leader and a member of Arup’s Group Board, leading businesses in Africa, India and the Middle East. He is an Urban Planner and Land Economist and has worked on some of the largest planning and development projects across the globe.
Vivek Ramachandran, CEO, SeraiVivek Ramachandran is the Chief Executive Officer of Serai, a new tech venture owned by HSBC. Based in Hong Kong, Serai is B2B platform where buyers and suppliers can search and transact via trusted networks.