Erste Asset Management

Logistics – the circulatory system of the economy (Editorial)

Logistics – the circulatory system of the economy (Editorial)
Logistics – the circulatory system of the economy (Editorial)
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Wikipedia defines logistics as an economic sector that “is the management of the flow of things between the point of origin and the point of consumption in order to meet requirements of customers or corporations. The resources managed in logistics can include physical items such as food, materials, animals, equipment, and liquids; as well as abstract items, such as time and information. The logistics of physical items usually involves the integration of information flow, material handling, production, packaging, inventory, transportation, warehousing, and often security.” Clearly, logistics is a comprehensive issue and today our world would not be conceivable without it. It makes sure the economy keeps moving.

Logistics is a particularly important topic from the perspective of sustainability, as it has a few distinctive features. It is non-localised: just think of ships sailing under the flag of Liberia or Panama, or lorries from Eastern Europe on our streets. Furthermore, speed is directly linked to the value chain in this sector. The decision of whether something should be sent by aeroplane, lorry, or train is largely informed by speed and costs. In addition, logistics is located at the interface of public and private sphere. Economists talk about “externalities” when economic decisions have an impact on third parties in the market who are not involved and who do not get compensated for said impact. In simpler terms: Think of the infrastructure that the logistics sector hinges on. Roads, rails, waterways, and the airspace are “free” goods that belong to all of us but are being used by the logistics sector without them paying for it (or without paying a market price, as there is no market).

This comes with effects on sustainability. Externalities constitute the core of our environmental problems. The environment has no price tag and is therefore not taken into account when costing projects. From an economic point of view, the transport of potatoes back and forth across Europe for washing, peeling, and packing does make sense. However, the CO2 pollution, the noise, and the respirable dust are not taken into account. The rising demand for speed can also lead to problems with those workers who have to operate under this principle. Do you want to be late for an appointment, or should you step on it, and speed limits or road conditions be damned? The independence of location (which facilitates the formation of an international market price more so than in other sectors) does not reflect the local or national working, environmental, or technical minimum standards. This also ties in with the question of where a service is performed and where it is taxed.

Without logistics, globalisation would not be possible. Please do not get me wrong, I am in favour of globalisation and free global trade, but it is important to be aware of their downsides. Also, the trend towards fast change plays a central role, as exemplified by two topics that have been in the media lately: parcel delivery by drone and autonomous cars. The latter could make long-distance lorry drivers redundant in the future, and parcel delivery by drone could do to ordinary delivery companies what email has done to snail mail. Here, too, I support technical innovation. Schumpeter’s creative destruction is the driver of the higher standard of living that we all enjoy today. Still, the speed at which things are happening is an issue that has to be looked at from a sustainable angle as well. As you can see, logistics is an exciting topic. And it is also one of the most urgent ones in the run-up to the festive season, where we might want to think about how gifts end up under our Christmas trees.



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