4 factors that might make China’s New Silk Road a bumpy ride
Wolfgang Lehmacher, Head of Supply Chain and Transport Industries, World Economic Forum
The ancient and historic trade route between China and Europe is coming back to life as one of the biggest infrastructure projects of the 21st century, with major implications for economies throughout the world.
One Belt/One Road (OBOR), the all-encompassing effort to restore old trade routes and streamline the transport of goods from Asia to Europe, has already received more than $51 billion from China, and more than 100 countries have signed on, with free trade, collaboration agreements or other partnerships.
The expected benefits are well known: 70,000 new jobs, vastly improved economies of countries such as Kazakhstan, and opportunities for small and medium enterprises, both from Asia and Europe, to enter new markets that today may not be easily accessible. But achieving that potential means overcoming four major obstacles: the slow speed with which goods now travel, the inconsistency of customs clearance, the high costs for everything from labour to logistics delays, and the lack of visibility into the status of goods making their way along the New Silk Road.
When companies ship by air they only need to deal with the red tape of customs and inspections at the beginning and end of a journey. Ground transportation is less expensive, but it stalls each time you cross a border. Products not only move slowly but are also subject to increased costs, including potentially moving from one truck or train to another. There are also tariffs, arbitrary delays and possible system manipulation.
Image: The Wall Street Journal
However, if OBOR operated with a single unified customs system and effective methods of tracking the products on board, shipments could move smoothly across boundaries — replicating the efficiency of air shipments with the low cost of land transport.
Fortunately, the solutions exist to help OBOR reach its full potential with technologies that improve infrastructure inefficiencies, connect people and create new opportunities. Companies could achieve real time supply chain visibility by deploying low-cost satellites with access by iPhones or other handheld devices, for example.
Another move that could dramatically help is if the Asia-Pacific Economic Cooperation (APEC) introduced a standard customs procedure for OBOR freight by consolidating requirements and developing a common IT platform.
For OBOR countries, the path to an efficient and cost-effective New Silk Road begins by systematically addressing the four pain points of the digital supply chain. Here are some ways to begin.
- Speed: Companies could smooth shipments and make better use of resources by installing state-of-the-art warehouse and inventory management systems, including capacity planning and supplier collaboration.
- Inconsistency: Countries could implement systems that standardize the clearance of goods while using common templates and replacing human decision-making with speedy Artificial Intelligence processes.
- Costs: Companies could reduce labour costs and shipment-delay costs, with automation replacing such activities as loading and unloading.
- Visibility: New advances such as digital ledger technology (DLT) could provide structured, real time tracking information to allow stakeholders to know when a shipment will arrive and to plan operations in advance.
By investing in the IT infrastructure needed to address these four pain points, companies and countries will generate basic data, which, as it matures and gets structured, becomes invaluable when accumulated as big data. These are complex data sets that can be collected and analysed for insights that serve as a starting point for improving everything, from operations to the development of services, even allowing companies to transform their business models for greater success.
With such systems in place, a few key areas of opportunity will emerge along the New Silk Road. First, a digital revolution will level the playing field for SMEs. For example, they’ll be able to adapt production plans to product supply and demand dynamics or identify new markets.
The sharing economy will also blossom. With the right IT in place, on-demand manufacturing and warehouse management platforms could connect makers with factories. A sharing economy inspired by big data will create significant employment opportunities in OBOR countries.
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Finally, big data will attract more direct investment in OBOR countries from foreign sources. The money is already flowing to seed Kazakhstan’s growth. For example, Dubai-based port operator DP World is expected to invest $1 billion in the development of Khorgos-Eastern Gates Free Zone and Aktau Port in Kazakhstan.
Foreign direct investment in new technology will also broaden the economic base of Kazakhstan, Uzbekistan and other countries along the New Silk Road. They could leverage such advances as 3D printing to develop their manufacturing industries. Smart manufacturing technologies would enable SMEs to make more of their money from selling intellectual property than from shipping end products to customers.
The revived railway, combined with wise technology investments, creates exciting prospects. Imagine how half-empty container cars travelling across a desert in Central Asia could advertise their available space in real time — and at a discount — connecting en route with potential shippers looking for a low-cost way to send their wares. Centuries after it was established, the New Silk Road could define the future of trade between East and West — but only if it first overcomes the four big obstacles in its path.
Originally published at weforum.org.