Less Globalization, More Relocalization and Its Impact on Maritime Traffic

In February, investors withdrew two trillion dollars from their capital funds in European markets. There is an exodus of investments due to fears of political and economic instability. The financial market crisis has boosted the flow of capital towards other activities, such as commodities, a trend that persists as the prolongation of the Ukrainian conflict is anticipated.

The sale of ETF funds and European assets continues to this day, despite the momentum they had in early 2022. The Euro Stoxx 600 index has fallen by 10.5% since mid-February, while U.S. assets have continued to rise.

The flight of capital maintains a clear direction towards the west. Instability, market volatility, inflation, the energy crisis, recent geopolitical events, and the conflict in Ukraine convey uncertainty and insecurity to investors.

If the supply issues and delays in maritime transport during the pandemic prompted a trend towards the relocalization of companies to ensure the supply of essential consumer goods, the conflict in Ukraine has been the biggest trigger for witnessing a retreat from the globalization of markets and their production chain.

Variety of grains

Geopolitics and the current world order add an extra risk to globalization strategies and macroeconomics, prompting a review of inter-state trade dependencies.

Mutatis mutandis, events are driving an acceleration in the development and implementation of green energies as alternatives to fossil fuel sources to ensure energy security. We are witnessing a resurgence of digital currencies in financial markets, albeit with certain regulations for greater assurance in operations and to contribute to reducing the underground economy.

The relocalization of companies is improving the internal economy of major producing countries. Goods are produced and consumed within their borders, in addition to the savings this entails in transportation logistics. Most importantly, the supply of key products is guaranteed, as evidenced during the pandemic with sanitary products or microchips.

Microchip manufacturing center

The shift from globalization to the relocation of industries inevitably leads us to a reorganization of major maritime routes and logistics hubs. It is possible that, under these circumstances, the strategic Chinese Silk Road may be altered and that the Asian giant may see its exports diminished due to the rising trend in its prices. China no longer produces as cheaply and is affected by external factors beyond its control, such as the price of raw materials.

Deindustrialization also led to the hollowing out of manufacturing regions and the disruption of the supply chain during the pandemic, revealing the vulnerabilities created by globalization. Supply has been unable to keep pace with high demand, thanks to the recovery of some economies and their increasing consumption.

After decades of globalization and cheap supply, cost minimization, investment opportunities are now looking towards reliable supplies and local production.

In East Asia, specifically in Taiwan, Semiconductor Manufacturing and Samsung in South Korea produce 80% of the microchips used worldwide. The reasons for geopolitical tensions between major powers in the South China Sea are becoming apparent. The situation has prompted a U.S. response to reclaim part of this production on its own territory.

“In troubled waters, fishermen gain.” The instability in Europe and Central Asia has boosted the values of Latin America. The MSCI Latin American Index has increased by 13% this year. Gains from Chile, Peru, Colombia, and Brazil stand out. This trend is attracting significant amounts of capital.

The rise in prices of commodities, of which Latin America is one of the world's leading producers, attracts new investments. Brazil is one of the largest global producers of soybeans, crude oil, and iron ore, products that have been significantly affected by the conflict between Ukraine and Russia.

Open-pit mining in Chile

The rise in oil prices will harm crude-importing countries in Latin America such as Chile and Peru. Chile produces copper. Argentina has seen its wheat exports overvalued and compensates with its products to markets that have stopped buying from Ukraine or Russia.

Thus, the direction of east-west grain traffic would reverse thanks to the production of the great Latin American pantry.

The same applies to the supply of LNG or crude oil, which are supplied through gas carriers and oil tankers originating from U.S. export centers.

In the Mediterranean and Suez Canal, maritime traffic will increase with products from the Middle East and supplies in a west-east direction, which will obviously affect the Strait and bordering ports.

If the trend towards local production continues, one of the big losers would be China and therefore the traffic originating from the Asian giant destined for the European continent.

In the coming months, we will witness significant variability in maritime routes, a circumstance that would not change even if the Ukrainian conflict were to end. Recovering commercial and production balance in the region will undoubtedly take time.

Photos: provided