Philippa Kaur

Jan 14th 2023

Singapore

Driverless vehicles whizz across five new berths at Tuas Mega Port, which sits on a swathe of largely reclaimed land at the western tip of Singapore. Unmanned cranes loom overhead, circled by camera-fitted drones. The berths are the first of 21 due by 2027. When it is completed in 2040, the complex will be the largest container port on Earth, boasts PSA International, its Singaporean owner.

The trade winds blow east

Worldwide port container throughput, TEUs*, bn

Latin America

Middle East and Africa

North America

Source: Drewry Maritime Research

Tuas is a vision of the future on two fronts. It illustrates how port operators the world over are deploying clever technologies to meet the demand for their services in the face of obstacles to the development of new facilities, from lack of space to environmental concerns. More fundamentally, the city-state’s investment, with construction costs estimated at $15bn, is part of a wave of huge bets by the broader logistics industry on the rising importance of Asia, and South-East Asia in particular. The IMF expects the region’s five largest economies—Indonesia, Malaysia, Singapore, the Philippines and Thailand—to be the fastest-growing bloc in the world by trade volumes between 2022 and 2027. The result is that the map of global commerce and the blueprints for its critical nodes are being simultaneously redrawn.

Across the planet, the expansion of seaports is becoming tougher, notes Jean-Paul Rodrigue, a professor of transport geo­graphy at Hofstra University in Long Island. Space in the right locations is scarce. Critics of development, especially among environmentalists, are not. Last year a big port expansion in Piraeus, Greece, was blocked by courts for failing to provide the right assessment of its environmental impact. One in Veracruz, Mexico, was also stopped on environmental grounds.

One solution is to make existing logistics networks more efficient rather than merely larger. In April PSA finalised its purchase of BDP International, an American freight-forwarder specialising in supply-chain management, for an undisclosed sum (its previous private-equity owner had reportedly been looking for $1.5bn). Over the past two years DP World, an Emirati port operator, has bought two supply-chain specialists: Imperial Logistics, a South African firm, for $890m and Syncreon, an American one, for $1.2bn.

Planned expansion

Container space

Planned expansion

Container space

Maasvlakte port, Rotterdam
Image: Jean-Paul Rodrigue

Streamlining supply chains only gets you so far, however. At some point, new capacity will be needed. One way to achieve it is by reclaiming land from the sea. This requires feats of civil engineering—and is expensive. Singapore’s Maritime and Port Authority spent around $1.8bn on filling in the sea with earth for the first stage of the new Tuas facility. The massive Maasvlakte expansion, the second leg of which opened in 2015, has so far cost the Port of Rotterdam, an enterprise jointly owned by the Dutch state and the city government, around €2.9bn ($3.1bn).

Many ports are too deep for land reclamation to be viable. Some are therefore deciding to build upwards. In conventional set-ups, it is impractical to stack more than six containers on top of each other, and even then tall stacks require boxes to be shuffled around constantly to get hold of the right one. The shuffling can take more time than actually moving containers around the port and onto vessels, says Mathias Dobner, chief executive of BoxBay, a joint venture between DP World and SMS Group, an engineering firm. In BoxBay’s “high-bay” storage system each container sits in an individual rack, where automated cranes can pluck them out individually. In Dubai’s Jebel Ali Port, run by DP World, this allows containers to be stacked 11 high.

An illustration of the “high-bay” container system in operation
Video: BoxBay

If you cannot build out or up, another option is to build elsewhere. That explains the rising popularity of inland “dry ports”, where goods are put in containers ahead of time, ready to be loaded onto ships as they arrive at the pier without needing to be stored for days at the port itself. This also lightens road congestion at the terminals. Around 150km (90 miles) from California’s coast, in the Mojave Desert, Pioneer Partners, an investment firm, has secured land and permits for such a facility, to ease traffic at the hopelessly inefficient ports of Los Angeles and Long Beach.

In 2016 PSA entered a joint venture with Chinese state-owned rail operators to run a network of dry ports in China. Manufacturers load goods onto trains at one of 13 inland rail terminals for transport to the coast. Some of these terminals are rather a long way from any shoreline. Urumqi in Xinjiang province, home to one of them, is farther from the sea than any other city in the world, around 2,400km from the Bay of Bengal. In 2022 the International Finance Corporation, the private-sector arm of the World Bank, signed an agreement with another Singaporean logistics firm, YCH Group, and T&T Group, a Vietnamese conglomerate, to develop a $300m inland container depot in Vinh Phuc, in northern Vietnam. The project, known as Vietnam SuperPort, will begin operations in 2024, providing some welcome relief in a country where exports have risen far more rapidly than inland logistical investments.

All the dry-port development in Asia points to the second force reshaping the ports business: the shift of its centre of gravity eastwards. For decades Asian trade has tended to be one-way. Containers loaded with goods manufactured by the continent’s cheap labour sailed to advanced economies and came back largely empty. In the late 1990s more than 70% of Asian exports by value went to other parts of the world. A quarter of a century on, thanks in part to those trade flows and more complex supply chains, Asian economies have become big markets. Today nearly 60% of Asia’s exports flow within the region.

The logistics industry is, like PSA with Tuas, making a long-term wager that this share will grow. Logistics investments grew everywhere amid the pandemic surge in e-commerce. In Asia they ballooned. CBRE, a property consultancy, forecasts that Asia (including China) will account for 90% of the growth in global online shopping between 2021 and 2026. That will require up to 130m square metres of new logistics real estate.

A boom in investment in warehouses for storage and hubs for distribution and fulfilment in the region is already under way. Last year GLP, a Singaporean investment firm specialising in logistics real estate, announced a $1.1bn fund focusing on Vietnam and a $3.7bn one focused on Japan. Its sixth China fund, worth $1bn, closed in early November. India is likely to get a boost as global manufacturers look to diversify their production away from China. The ports business of India’s richest tycoon, Gautam Adani, operates Mundra Port in Gujarat, the country’s largest, and 12 other ports and terminals across seven Indian states. Their combined annual cargo volumes have surged from 200m tonnes three years ago to 300m in 2022. Mr Adani is aiming for 500m tonnes by 2025.

The construction of Mundra Port, Gujarat
Video: NASA Landsat; Google Earth Engine

Investments by shipping giants are pointing in the same eastward direction. In ­October, while global shipping rates were plunging as the effects of pandemic-era bottlenecks eased, Mediterranean Shipping Company (MSC), the world’s biggest by total capacity, announced five new ­intra-Asian services. Three months earlier MSC had announced a $6bn joint venture with the government of Ho Chi Minh City to build a port there by 2027. It will be Vietnam’s largest port on completion. In ­August A.P. Moller-Maersk, msc’s biggest rival, completed the $3.6bn purchase of LF Logistics, a Hong Kong-based firm focusing on intra-Asian trade. The deal brought 223 warehouses and 10,000 employees across the continent under the Danish shipping giant’s banner, with an explicit focus on Asian consumers.

When seaborne trade boomed last century, investments in logistics reflected shifts in the global patterns of production and consumption. They are doing so again. And this time the future looks leaner, smarter—and more eastern. ■ More

For more than 140 years John Davis’s family has owned the Pecan Spring Ranch on the prairie lands of West Texas. He has a photo of his great-great-grandmother, known as “the sheep queen of Texas”, sitting in a horse-drawn carriage beneath a tree that still stands in front of the hay barn. It’s a tough business to maintain, even with a valuable herd of Wagyu beef cattle to raise. Yet when a renewable-energy developer offered Mr Davis a large payment to put wind turbines on his land, at first the staunch Republican—and former state congressman—turned it down.Listen to this story. Enjoy more audio and podcasts on More

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Technology and business are inextricably linked. Entrepreneurs harness technological advances and, with skill and luck, turn them into profitable products. Technology, in turn, changes how firms operate: electricity enabled the creation of larger, more efficient factories, since these no longer needed to depend on a central source of steam power; email has done away with most letters. But new technologies also affect business in a subtler, more profound way. They alter not just how companies do things but also what they do—and, critically, what they don’t do.The history of capitalism is a story of such reorganisations. The Industrial Revolution put paid to the “putting-out system”, in which companies obtained raw materials but outsourced manufacturing to self-employed craftsmen who converted these into finished products at home and were paid by output. Instead, factories strengthened the tie between worker, now employed directly and paid by the hour, and workplace. The telegraph, telephone and, in the 20th century, containerised shipping and better information technology (IT), have allowed multinational companies to subcontract ever more tasks to ever more places. China became the world’s factory; India became its back office. Nearly three years after the pandemic began, it is clear that technology is once again profoundly redrawing the boundaries of the firm.In the rich world, fast broadband internet and new communication platforms like Zoom or Microsoft Teams mean that a third of working days are now done remotely. Jobs are trickling out from corporate headquarters in metropolises to smaller cities and towns. And the boundary between collaborating with a colleague, a freelance worker or another firm is blurring. Companies are drawing on common pools of resources, from cloud computing to human capital. By one estimate, skilled freelance workers in America earned $247bn in 2021, up from about $135bn in 2018. The biggest firms in America and Europe are becoming more reliant on outsourcing white-collar work. Exports of commercial services from six large emerging markets have grown by 16.5% a year since the pandemic began, up from 6.5% before it (see chart 1). On January 9th Tata Consultancy Services (TCS), an Indian IT-outsourcing giant, is expected to report another bump in profits. On Coase inspectionA useful lens for understanding these changes was offered by Ronald Coase in his ground-breaking paper from 1937 entitled “The nature of the firm”. Stay small and you forgo the efficiency afforded by scale. Grow too big and a business is too unwieldy to manage—think of Soviet-style command-and-control economies. Most commerce happens in between those extremes. But where on the continuum? Coase, whose insights earned him a Nobel prize in economics, argued that firms’ boundaries—in other words, what to do and what not to do yourself—are determined by how transaction and information costs differ within firms and between them. Some things are done most efficiently in house. The market takes care of the rest.For example, between the 1980s and the 2010s, globalisation and the IT boom boosted economies of scale and, as a result, encouraged market concentration. But the two factors also increased competitive pressures and reduced the cost of communication and collaboration between firms. This caused companies to shrink their scopes. In research published last year Lorenz Ekerdt and Kai-Jie Wu of the University of Rochester found that the average number of sectors in which American manufacturers were active fell by half between 1977 and 2017. By the 2000s many sprawling industrial conglomerates like Germany’s Degussa, which had a hand in everything from metals to medicine, or British Aerospace, which was dabbling in automobiles, had unwound themselves and picked the knitting to stick to (chemicals and aircraft, respectively). Today Coasean forces are ushering in a new type of corporate organisation. It resembles a 21st-century putting-out system—not for artisan craftsmen but for the sort of white-collar professionals who epitomise modern Western economies. Micha Kaufman, boss of Fiverr, an Israel-based marketplace which matches freelance workers with corporate clients around the world, observes that firms are getting better at measuring workers’ performance based on their actual output rather than time spent producing it. This is true both of employees and subcontractors. The result is a reorganisation of businesses both internally and in relation to other companies in the economy.Start on the inside. Using data from America’s Quarterly Census of Employment and Wages, The Economist has examined jobs in three sectors particularly compatible with remote work: technology, finance and professional services. Our analysis finds that such jobs have become far more distributed across America since the pandemic. Big metropolitan areas have lost out to smaller cities and even the countryside (see chart 2). Since the fourth quarter of 2019, the number of jobs in the three sectors has grown by five percentage points more in rural areas than in San Francisco and New York. Firms are also distributing work across more borders, often in new ways. Oswald Yeo, who runs Glints, a recruiting startup in Singapore, says that his firm hires employees in batches by country. That helps the new recruits from Indonesia, say, form in-person connections with colleagues there, while expanding Glints’s talent pool, Mr Yeo explains. There is a premium for locations without a big time difference because, as a study last year from Harvard Business School found, cross-border teams collaborating on non-routine tasks often work into their leisure time in order to work synchronously with colleagues in different time zones. In Glints’s case, that is places like Indonesia. For American companies, it is increasingly Canada. Microsoft, which opened its first Canadian office in 1985, created a big new one in Toronto in 2022. Google is tripling its Canadian workforce to 5,000. A study last year by CBRE, a property firm, of the 50 cities in America and Canada with the most tech workers found that four of the top ten were Canadian. Together, the four added 180,000 tech jobs between 2016 and 2021, an increase of 39%. By comparison, the top four American cities gained just 86,000 jobs, or 8%, over the same period. Lower costs doubtless helped; the Canadian quartet were among the 16 cheapest cities among the 50, as measured by housing costs.Barriers to immigration are another factor forcing firms to look abroad, says Prithwiraj Choudhury of Harvard Business School. Mr Choudhury has documented a growing class of firms that help employers forge stable relationships with overseas employees without hiring them directly. One example is MobSquad, a firm that recruits skilled workers unable to obtain visas to America and employs them in Canada instead. Its American clients include Betterment, an investment firm, and Guardant Health, a biotechnology company.MobSquad’s recruits sit somewhere in between outsourced temps and full-time employees. This sort of arrangement points to the bigger Coasean shift—to how firms demarcate which tasks they perform on their own account and which they subcontract. A survey of nearly 500 American firms conducted by the Federal Reserve Bank of Atlanta in August 2022 found that 18% plan to use more independent contractors; only 2% said they would use fewer (see chart 3). On top of that, 13% want to rely more on leased workers, compared with 1% who want to reduce this reliance. MBO Partners, a workforce-management firm, estimates that the number of American workers engaging in independent work for at least 15 hours a week increased from 15m in 2019 to 22m in 2022. Official figures from the Bureau of Labour Statistics are more conservative, but still show that nearly 1m more Americans are self-employed than at the start of 2020. Pandemic-era job losses forcing people into less desirable work arrangements cannot be the whole story; a similar surge in self-employment did not occur after the global financial crisis of 2007-09. The shift is once again enabled by technology, such as the proliferation of platforms for all manner of freelance work. Having grown slowly, from 9% of America’s labour force in 2000 to 11% in 2018, self-employment is becoming much more common. Gig work is no longer the preserve of ride-hailing or food delivery. Whereas earlier freelance platforms, such as Taskrabbit, focused on routine tasks, emerging new ones increasingly recruit freelance workers for complicated work. Upwork specialises in web development; Fiverr is known for media production. Amazon turned to Tongal, another freelancing platform, when it needed a team to rapidly produce social-media content for its Prime TV shows. Besides making it easier for companies to rely on non-employees, technology is enabling new ways of collaboration between businesses. In 2020 Slack, the messaging platform of choice at many a firm, launched a feature that allows users to communicate directly with other companies as they can within their own organisations. More than 70% of companies in the Fortune 100 list of America’s biggest firms by revenue use the feature. The Atlanta Fed’s survey found that 16% of responding firms were planning to increase domestic outsourcing and 12% envisioned more offshoring. Already, combined revenues for six big IT-services firms with large operations in India—Cognizant, HCLT, Infosys, TCS, Tech Mahindra and Wipro—grew by 25% between the third quarter of 2019 and the same period last year (see chart 4). Pinning down just how much firms depend on outsiders is tricky—companies do not advertise this sort of thing. To get an idea, Katie Moon and Gordon Phillips, two economists, look at a firm’s external purchase commitments in the upcoming year as a share of its cost of sales. As a snapshot of the economy, this measure of “outsourcing intensity”, as Ms Moon and Mr Phillips call it, must be treated with caution; it does not capture all types of outsourcing and different firms account for external purchases in different ways. But it usefully illustrates changes over time.The Economist has calculated the measure using data from financial reports for a sample of large listed firms from America and Europe (see chart 5). We find that companies are indeed growing more reliant on others. Average outsourcing intensity across our sample has nearly doubled from 11% in 2005 to 22% in the most recent year of data (either 2021 or 2022). This growth is especially pronounced among tech titans such as Apple and Microsoft; businesses that grew little over the analysed period, such as Unilever, a British consumer-goods giant, saw only small increases. This is consistent with research which finds that as firms grow ever larger and adopt more technologies, thus becoming more complex and unwieldy, they outsource more operations—precisely as Coase would have predicted. As technology evolves, the contours of the firm will continue to be redrawn. The result is that companies have greater flexibility to seek out new workers for new tasks in new places. Portugal has created a special visa for digital nomads, who will be able to work from the country for a year. Argentina wants to introduce a preferential exchange rate for freelance workers selling their services abroad: the “tech dollar” would ensure that they will not be exposed to the rapidly devaluing peso. For Western white-collar types, this stiffer competition for work may translate into compressed wages. According to a working paper published last year, by Alberto Cavallo of Harvard Business School and colleagues, wages differ less between countries for occupations that are more prone to outsourcing. For the global economy, though, it means greater efficiency and, hopefully, faster growth and higher living standards. And for Coase, it means continued relevance. ■ More

It is the stuff of parental nightmares. Between July and October 70 children in Gambia died of kidney failure. In December 18 perished in Uzbekistan from renal problems and acute respiratory disease. In both cases Indian-made cough syrups may have been at fault, according to allegations by a Gambian parliamentary committee and the Uzbek authorities. Listen to this story. Enjoy more audio and podcasts on More

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After Tesla’s market capitalisation swept past that of Toyota, then the world’s most valuable carmaker, in the summer of 2020, devoted fans and incredulous sceptics deployed a new unit of measurement. As the electric-vehicle (EV) champion’s share price rose, its worth was couched in terms of the combined value of the next two, then five, then ten biggest carmakers. A year ago Tesla’s market value surpassed $1.2trn, more than most other car firms put together. Since then it has lost 72% of that—a sum likewise exceeding the value of most of the industry. The fortune of its mercurial boss, Elon Musk, has shrivelled by more than $200bn as a result.The latest blow came on January 3rd, after Tesla missed analysts’ expectations for deliveries for the third quarter in a row and reported that the gap between production and deliveries had grown, suggesting softening demand for its EVs. It lost 12% of its value—roughly $50bn, or one Ford Motor Company—in a day. Even bullish investors now doubt that Mr Musk will fulfil his promise of making 20m cars a year by 2030, or that Tesla’s ”Autopilot” is close to becoming a world-changing fully autonomous driving system. Yet the main reason for the market’s recalibration of Tesla’s prospects is a dawning realisation that the company is chiefly a carmaker—and that its boss is not superhuman.Mr Musk has always regarded his company as a tech firm, a peer of digital giants like Alphabet, Apple or Meta, not of old-economy metal-bashers such as Toyota or Volkswagen. For a time, so did the market—first as tech shares soared amid the pandemic-era boom in all things digital, then as they slumped last year, after their growth began to slow and higher interest rates made their promised future profits look less valuable today. In the past few months, however, Tesla’s share price has suffered a sharper correction than big tech. This has coincided with its more mundane tribulations as a car business. Having managed to avoid the worst of the pandemic supply-chain disruptions, Tesla has been caught up in China’s chaotic retreat from its zero-covid policy; its big factory in Shanghai has been hit by virus-related shutdowns. And having set the course for the industry’s EV transition, it now faces plenty of competition from established rivals and a host of newcomers it inspired. Days after Tesla reported the disappointing figures Volkswagen unveiled its id.7, a challenger to Tesla’s entry-level Model 3 saloon. EV-buyers, for their part, are becoming less willing than early adopters to overlook Tesla’s questionable build quality and the interior of a much cheaper car. And the natural Tesla-owners among the wealthy progressive set are less prepared to overlook Mr Musk’s libertarian antics at Twitter, which he bought in October and has mismanaged with gusto—especially now that they have plenty of conscience-salving EV alternatives to choose from.Tesla is, in other words, no longer the only game in town—and certainly no tech behemoth. As EV-makers go, though, it still looks impressive. In 2022 it delivered 1.3m cars, 40% more than the year before, and opened two new assembly plants. It is working on a smaller, cheaper car and this year will start to deliver its long-awaited Cybertruck pick-up. And it is still worth $340bn—nearly as much as the next three biggest carmakers combined. ■ More