DHL “Connectedness” index: ongoing importance seen for globalization

While the COVID-19 pandemic has, in some ways, fundamentally changed certain logistics processes and operations, due to the shifts it brought about in consumer behavior, and, more specifically, consumption and buying preferences, one area that remains on solid footing is globalization.

That was a key takeaway from the 10th edition of the DHL Global Connectedness Index, which was issued today/this week by global express and logistics services provider DHL and the NYU Stern School of Business.

DHL said that this report offers up a fresh perspective on how the pandemic has impacted globalization through the analysis of various things, including: international flows of trade, capital, information, and people. And it added that the report measures international flows relative to domestic activity, or depth, and also the geographic distribution of international flows, or depth, which it said are both essential factors to make informed business and public policy decisions, notably when a crisis is occurring.

DHL reported that the index saw what it called a very modest decline in 2020 and is on track to trend back up in 2021, with the caveat that that even with the 2020 decline globalization is more resilient than expected.

In terms of the “relevance of globalization,” DHL outlined four key areas, where this is the case:

• stimulating growth, free trade and openness are essential drivers for faster economic growth;
• improving lives, globalization plays a key role in bringing prosperity, health, and education even to remote areas;
• ensuring peace, international collaboration and shared economic prosperity reduces the risk of armed conflicts; and
• building tomorrow, globalization contributes to the global deployment of sustainable and climate-friendly technologies

DHL Express Americas CEO Mike Parra observed on a media call that this report speaks directly to what he called the resilience of globalization.

“It is critical in this current time of volatility and uncertainty to have data and facts that can give us a real understanding of the impact of the pandemic on globalization,” said Parra. “From our perspective, not much has really changed about the relevance globalization. And even during the extraordinary times we are living through, we see this still holds true. If anything, globalization is even more important during the last two years. Globalization was the stimulating force that allowed life to continue.”

As an example, Parra highlighted the importance of global markets and how it was the global supply chain that allowed PPE to be distributed and also its major role in delivering vaccines across the world. And even now, as the impact that supply chain challenges are having around the world, he said it serves as a reminder of how globalized the world truly is.

In the development of the report with NYU for the development of the CGI, Parra said that it has been driven by the fact that logistics is a key driver of globalization.

“It [globalization] declined in 2020 but proved highly resilient,” he said. “This was due, in large part, to the fact that global trade flows remained strong, and the answer to the global pandemic is a global response. The vaccine is an example. DHL has successfully delivered more than 1.5 billion doses of the vaccine to 168 countries. We also have a firm belief that trade represents the pathway to prosperity for everyone.
On the media call, Prof. Steven A. Altman, of the NYU Stern School of Business, said that contrary to projections that COVID might spell the end of globalization, the CGI saw only a modest decline in 2020 and is expected to rise again in 2021.

“Globalization has proven far more resilient than predicted during the pandemic,” said Altman. “The CGI uniquely measures both the size and geographic reach of international flows.

On the trade side, Altman explained how the international trade of goods shrank faster at the beginning of the pandemic than it did during the Great Depression and also the global financial crisis. And he added that after plummeting in the first half of 2020, trade roared back to all the way above pre-pandemic levels before the end of the year. What’s more, he noted that by early 2021, international trade in goods was setting new records, at 5% above pre-pandemic levels.

In light of all the tremendous challenges facing the trade environment throughout the pandemic, ranging from capacity constraints to sudden shutdowns of plants and ports, more goods are now being delivered across international borders than ever before, according to Altman.

“International trade has not only played a key role in delivering essential goods during the pandemic, it has also been a key enabler of the big shifts we have seen in spending patterns,” he said. “In the U.S., for example, people have been buying about 15% more physical goods this year than they were in 2019, and, of course, less on services. But this big shift in consumer spending, from services to goods, would have been impossible without robust trade flows.” 

While there is no retreat from globalization, Altman raised the possibility of the shifts in geography of global flows, in terms of if trade is becoming more regional and also the possibility of decoupling of between the U.S. and China.

Citing EY Europe Attractiveness Surveys, from April 2020, Stern observed that 83% of surveyed executives indicated their companies were planning on nearshoring their production networks, which he attributed to being a “panic response” at the time. That was proven true one year later, when the number dropped significantly to 23%.

“Regionalization was a big theme even before the pandemic, because geopolitical frictions might lead to more regionalized trade and so might technologies [automation and 3D printing] that could potentially make it more efficient to produce closer to a company’s customers. The data does not show signs of a [pending] shift from global to regional trade.”

For more information on the 2021 edition of the DHL Global Connectedness Index (CGI), please click here.