Deutsche Post DHL is investing €500mn in its Latin American business as it seeks to capitalise on growing demand to expand supply chains beyond China.
The logistics group is building out new warehouses across alternative manufacturing hubs such as Mexico, Malaysia and Vietnam as businesses try to diversify their sourcing.
Oscar de Bok, head of DHL’s supply chain business, said storage facilities in these countries were filling up almost as soon as they opened. “Every time we think that we are taking a bigger risk, we fill it up right away,” he said.
He added that businesses were not shutting down operations in China, but “instead of making the next investment of growth in China, [they are doing] that in alternative markets”.
His comments come as multinationals race to secure their supply chains and reduce their dependence on the world’s largest exporter, following disruptions during China’s draconian Covid-19 lockdowns and rising concerns over geopolitical tensions between Beijing and the west.
But De Bok echoed warnings that after decades of infrastructure investment in China, smaller manufacturing hubs have only limited supplies of land and labour to meet demand.
“Will the sum of Vietnam, Mexico, Malaysia [and] India be competitive with what China can offer? . . . Will there be a challenge in some cases? Probably,” he said.
He added that the Malaysian island of Penang, a hotspot for tech manufacturing, was running short of space, with new factories now spreading to the mainland.
DHL was also “fast seeing a scarcity of available people” across Malaysia and Mexico, he said. The group had secured an agreement with the Malaysian government that allowed it to bring in more foreign staff,” he added, “in return for offering facilities for workers that went beyond the minimum standards required.
Executives helping western multinationals to reorganise their global supply chains echo his views.
One Singapore-based supply chain consultant said they had helped a number of clients move factories from China to Mexico, boost manufacturing in Malaysia and increase semiconductor production in the US. “[But some of these countries] are literally running out of talent,” the person said.
Over the past year, big plans announced by DHL have included a €500mn investment in India, involving 12mn sq ft of warehouse developments between 2022 and 2026. The group will also lay out plans this week to invest the same amount across Latin America, as it foresees particularly high demand in Mexico from the automotive sector.
DHL’s investment plans follow a period of record earnings as consumers splurged on online shopping deliveries during Covid-19 lockdowns. But the group also faces competition from others who cashed in on the ecommerce boom, with the likes of Danish shipping group AP Møller-Maersk similarly hoovering up warehouses across Asia.
As DHL seeks to set itself apart from its rivals, De Bok said the company was investing in technology such as robots that could also help make up for labour shortages. He said he saw “lots of opportunities” in artificial intelligence, which could help the group optimise its transport routes in response to disruptions.
“Supply chains are now far better understood as being essential in everyday life. That means there’s way more investments going into supply chains,” he said. “It’s now an industry where you need to move really fast [and] be innovative.”
Source: Economy - ft.com
