Post-pandemic world with changes in logistic system

Even though Thailand is still confused and cannot find its own way to move the country's economy forward, countries all over the world start to predict their next year. They said there would be the expansion of international economic and Global Value Chains: GVCs. Moreover, the loosening of preventive measures of COVID-19 will happen in a way that people have to stay with it and have to move the economy forward at the same time.

In this article, I will predict the future of the logistic situation in the world that is about to change with the power transition in economic geography and COVID-19 as an added impulse. I value the changes in the logistic system because of the fact that Thailand is a part of GVCs. Moreover, Thailand is an importer and exporter both in production and consumption. Being a part of GVCs makes the expansion of employment, economic growth, and decreasing of poverty. However, the GVCs cannot happen if all the procedures in the logistic system are not operating well or have any obstacles. The following are the predictions in the logistic aspect from strategic intelligence scanning.

1) The continuing complication from COVID-19 causing a shortage of containers, and the freight rates were so high that they were not worth trading.

From 2020 until now, both sea and air transport are still unable to operate normally. Not to mention, the freezing of the manufacturing sector in some countries causing the freighter, which its number of trips is already decreasing, have no cargo and containers to be loaded on some trips. Moreover, this makes containers carrying goods to the consumer country do not return to the producing country. Therefore, a problem that will arise in the near term (1-2 years) before the international value chain will be at full capacity as before the COVID-19 pandemic is the container shortages and the higher freight charges.

Blank sailing, the navigation of ships with containers return to the producing country without loading, makes the current (June 2021) freight rates for shipment to the Americas and Europe increased by 200% – 300% compared with the same period last year. [1] (Visit Limlurcha, 2021) Moreover, the easing measures, which will reduce the cost of empty inbound containers that the government has done during the time of the COVID-19 epidemic, is unclear whether it will continue or not.

This situation makes Thai entrepreneurs fall into a risky position because of the continual increase in shipping costs. As the producers, Thai entrepreneurs usually set the price of their goods for delivery to the port (Free on Board: FOB), and importers or buyers at the destination are responsible for the freight. For this reason, Thai entrepreneurs can produce but are unable to export because the importer cannot bear the cost of transportation. It will make them switch to ordering products from other manufacturers that may have a higher cost, but the source of production is nearer, making the cost of transportation is lower. Especially, the customers of Thai manufacturers with high purchasing power in Europe and America.

2) Impact on the logistics system if there is a collision in the South China Sea.

South China Sea Area, Pacific Ocean, is an area of ​​conflict between nations and economic zones in territorial disputes. Moreover, it is an exclusive economic claiming zone between the People's Republic of China, Republic of China (Taiwan), Philippines, Vietnam, Malaysia, and Indonesia. Therefore, the United States' security strategies and the expansion of its role in both economic and security dimensions make the United States seem like another conflict in the area. Likewise, the patrolling of warships and warplanes in disputed territorial waters and claiming the right to safeguard freedom and safety in navigation. Not to mention, the United States supported weapons and funded military affairs for the countries that are the parties.

On the other hand, China has also acted provocatively, including building an artificial island, China-Vietnam clash over territorial and opportunities to explore resources in July 2019. Not to mention, launching the new law that gives the right to the People's Republic of China's maritime defense using weapons against foreign ships without restricting their enforcement. [2] (Kobchai Chooto, 2021)

Disputes in sensitive waters arise for several reasons, including conflicts between historical evidence and the United Nations Convention on the Law of the Sea (Convention on the Law of the Sea: UNCLOS), issued in 1982, the conflict between China and Taiwan, the scramble for natural resources including fishery, crude oil, and natural gas, and conflicts between superpowers, especially China and the United States. (Council on Foreign Relations, 2021)

Of course, if the disputed situation in the South China Sea reaches the breaking point and the forces of the powerful country are used to control the area, which is possible in the future. If we look at the changes in the world order and the chance of confrontation between the United States and China, one thing that will be affected is Pacific Ocean shipping and logistics routes linking the Indian Ocean, one of the world's most important shipping routes. In addition, the worst case is that it may not be able to navigate ships and planes through the disputed area, which will seriously affect the economic dimension.

According to the study Cosar and Thomas (2020), the Geographic Information System (GIS) model and the Computable General Equilibrium Model (CGE) were used to test the hypothesis. It stated that if unable to navigate through the South China Sea and the islands of Indonesia, it has to take a maritime route from the Indian Ocean to Australia before cutting back into the Pacific Ocean. Moreover, it assumes that ports in Cambodia, Hong Kong, Indonesia, Malaysia, Philippines, Singapore, Taiwan, Thailand, and Vietnam are closed.

This study found that the social welfare level (public satisfaction) of countries in East Asia, Southeast Asia, and islands in the Pacific Ocean will drop between 6.2% – 12.4%. Moreover, Thailand's social welfare levels declined between 9.15% and 20.97%, making it the fifth worst-hit economy after Taiwan, Singapore, Hong Kong, and Vietnam. Not to mention the fact that countries in this group will experience significant reductions in Real GDP. Notably, countries with higher military expenditures having even more real GDP declines. [4] (Coşar and Thomas, 2020)

3) Rail transport linking Southeast Asia to Europe under the Belt and Road Initiative (BRI)

The BRI project is a project initiated by China, it has been developed continuously since 2012/2013. On December 2, 2021, high-speed rail lines the Lao-China line, a distance of 417 kilometers, will be officially open for service. The station is located close to the foot of the 1st Friendship Bridge (Nong Khai - Vientiane). The shipping from northeastern Thailand to Kunming, the main city of Yunnan province, can be done within 10-15 hours. [5] (Xinhua, 2021) Moreover, considering railway lines in China and those linking China with the New Eurasian Land Bridge Economic Corridor to Western Europe and Scandinavia, which has trains already in service. A container weighing 22,000 kilograms will be delivered from the Thai border to anywhere in Europe within 20-22 days (compared to 40-50 days by sea freight). The shipping cost from China to Europe is about US$ 8,000/container. (compared to US$4,000/container if transported by ship and $32,000/container if transported by air).

Therefore, the future that must focus on is the changing of trade routes and the changing of Thai’s perspective toward China. Originally, China was considered as the source of raw materials and products that Thailand would import for production and distribution. Similarly, China is considered the largest market in the world that Thailand wants to export. However, in the short run, China's status as an important logistics link connecting Asia and Europe will become a new strength and influence of China in the geopolitical arena.

However, Thailand must rethink the high-speed rail project. Particularly, the Northeast Line (Bangkok - Nong Khai) and the Southern Line (Bangkok - Padang Besar), when these 2 lines will be completed? Nowadays, the project progress is much delay from the target. These two railway lines will connect to the railway system in Laos and Malaysia, linking continental trade to the Straits of Malacca in Singapore.

The reason to consider this is that nowadays, the status of Thailand is a missing link of the logistics system. If it can be linked, Thailand will benefit greatly both in the economic and the stability dimension as it is the center of rail linkage in the region.

4) Infrastructure investment linked to road logistics.

Thailand is strategically positioned as a hub for transportation in Southeast Asia. Moreover, since the 1990s, Thailand and the Greater Mekong Subregion (GMS) countries have been supported by the Asian Development Bank to connect many road networks and the development of economic corridors with Thailand as a hub for connecting.

In addition, Thailand has developed infrastructure and improved regulations, including providing benefits in the form of special economic zones (SEZs) totaling 10 areas. Additionally, the Eastern Economic Corridor (EEC) project will link Thailand and neighboring countries, especially along the 3 major economic corridors (consider the map). [7] [8] (Asian Development Bank, 2018; Office of the National Economic and Social Development Council, 2021)

The following are the 3 major economic corridors.

The first one is North-South Economic Corridor or Highway No. 3 (R3), which connects Kunming, the main city of Yunnan province, China. It cuts through Thailand through Chiang Rai and down south to connect with Malaysia in Songkhla and Narathiwat provinces. That area is an extension that the Asian Development Bank considers potential. Furthermore, Thailand has positioned the special economic development zone at Chiang Rai province (3 districts, 21 sub-districts, area 1,523.63 square kilometers), Songkhla province (Sadao district, 4 sub-districts, area 552.30 square kilometers), and Narathiwat province. (5 districts, 5 sub-districts, area 235.17 square kilometers)

The next is East-West Economic Corridor or Highway No. 2 (R2), which connects Pathein (in the extension), Myanmar to Thailand via Tak province, and connect to Lao at the 2nd Friendship Bridge in Mukdahan province. The highway ends in Danang, which is the 3rd port city in Vietnam. Thailand has positioned the special economic development for 4 zones: the first zone is Tak province (3 districts, 14 sub-districts, area 1,419 square kilometers), the second is Mukdahan province (3 districts, 11 sub-districts, 578.5 square kilometers area), the next zone is Nakhon Phanom province, a special economic development zone (2 districts, 13 sub-districts, area 794.79 square kilometers) to connect the 3rd Friendship Bridge, Lao, and the last zone is Nong Khai province (2 districts, 13 sub-districts, 474.67 square kilometers area), which will be the terminal station of the Northeast high-speed rail system that will link to the Lao-China high-speed rail project.

The last one is Southern Economic Corridors or Highway No. 1 linking the Bay of Bengal at Dawei Myanmar to Kanchanaburi. (Kanchanaburi special economic development zone has 2 sub-districts of Mueang district, 260.79 square kilometers) It will connect by intercity highways to Bangkok before splitting into 2 lines; the northern direction will connect to Cambodia at Sa Kaeo province, (Sa Kaeo special economic development zone has 2 districts, 4 sub-districts, 332 square kilometers), the southern direction will pass the Eastern Economic Corridor (EEC) project in Chachoengsao, Chonburi, and Rayong provinces. Moreover, it will include the special economic development zone of Trat province (3 sub-districts of Khlong Yai district, area 50.20 square kilometers) before connecting to the port city of Prah Sihanouk of Cambodia.

According to a study by Dobronogov and Farole (2012), the most important measure of success in the development of SEZs is geographic location. It can link the manufacturing sector to its strengths in dimensions of natural resources, human resources, and large markets in the targeted areas. [9] As has been noted, if Thailand manages these areas together with neighboring ASEAN countries effectively, coupled with prioritizing the support of resources equally without giving too much importance to one area. Therefore, the future of these border areas will become new frontiers that open up future international trade and investment opportunities.