6th APEC Transportation Ministerial Meeting
Introduction
In 1872, Jules Verne wrote Around the World in 80 Days. Then, it was considered a modern marvel that due to innovations in rail, road and sea transport, a man could travel such an incredible distance in such a short time.
Less than one hundred years later, with the advent of space flight, it was reduced to 80 minutes.
Of course the world hasn't actually become physically smaller, but through the application of our willpower and our ingenuity we've effectively made it so.
This morning I am going to focus on three things:
First, why current economic conditions make it even more critical for economies to keep making such leaps forward to make our world smaller, to reduce the time and costs in moving goods, services and people around the region.
Second, what businesses, in particular transport executives have highlighted to me as their key concerns and expectations.
And third, what APEC is doing at both the strategic and practical levels to address these concerns.
1. Current economic environment
The recent collapse of global trade has sent economists and journalists scrambling to their thesaurus, to find new ways to say "unprecedented downturn". But whatever the words used, it's clear that we've witnessed trade disruptions of epic proportions.
Asian exports are down 20%; Asian air cargo volumes are back to 2003 levels; and 10% of the global shipping fleet is idled. In recent weeks analysts have been saying that the rate of decline seems to be slowing - but, we are being warned not to count our recoveries before they hatch.
Even if trade volumes do improve, revenue and profit recovery in the transportation industry will be difficult and slow ...as the recent collapse in demand has coincided with an unparalleled increase in supply. It is estimated that large ship capacity has increased by around 25-35%, and that with new ships still leaving the yards, capacity could even double in the next few years. This gap between demand and supply will likely bring freight rates down to breakeven levels, or below.
2. Transportation Companies' Priorities
I turn now to the priorities of our transport and logistics companies.
In the last 20 years, our region has witnessed a remarkable growth driven by the private sector. With the current downturn, the private sector is now hard-hit, with many digging in, trying their best just to keep afloat. But there is only so much they can do to cut costs and increase productivity.
When you meet face-to-face with transport chiefs you immediately feel their plight: like the head of a regional airline who told me of his despair in seeing his planes sit idle, or planes that had departed with cargo returning empty.
I get the same refrain from our transport executives. Now is the time for APEC economies to do everything possible to help them reduce costs and operate more efficiently, inside borders and across borders.
At the macro level they want APEC to keep to the Bogor Goals of free and open trade and investment, and to do so with more vigour. One area highlighted was air services and my attention was drawn to a study which shows that liberalisation of air services agreements between economies leads to average growth in air traffic of 12% to 35% ... which in turn generates significant growth in employment and GDP.
Another key industry priority is that APEC must fight against protectionism - companies cite examples of 'creeping protectionism' that constitute invisible barriers to trade, such as additional pre-shipment inspections.
They commend our efforts to improve safety and security but stress that it should not create overly onerous requirements that end up hindering trade.
They want us to forge ahead with trade facilitation in areas such as the simplification of customs procedures and the adoption of international standards.
And they want us to approach logistics in a holistic way because it's an issue that cuts across transport, finance, trade, communications and more.
But being optimists, companies also see the current economic downturn as an opportunity that must not be missed.
They say that when trade volumes peaked around 18 months ago, the global infrastructure was creaking under the weight. So they want economies to spend a hefty percentage of their stimulus packages on infrastructure initiatives that will support and drive economic performance in the future.
Steve Okun of UPS and also Chairman of AMCHAM Singapore, has stressed to me that economies should look beyond the infrastructural hardware such as roads, ports and railways - to the infrastructural software, such as regulations and standards that also act as constraints on trade. These things don't require much money to fix but they do require political will and effort.
3. APEC's Transportation Agenda
So how is APEC responding to these concerns ?
At the strategic level, APEC, which has always been the champion of free trade, should stand firm against the natural instinct to look inwards and to resort to protectionism at a time of crisis. Here, APEC is working closely with the WTO in keeping protectionist tendencies at bay.
At the practical level, APEC's progress on the Bogor Goals has effectively reduced average tariffs in the region from 16.9% in 1989, to 5.5% in 2004. It is now vital to look elsewhere to improve efficiencies and reduce transaction costs along the supply chain.
The evidence shows that improving connectivity between underdeveloped and dynamic areas, both internally and across borders, generates the greatest returns. Indeed, studies have shown that each day saved in bringing goods to the market is equivalent to one percent tariff reduction.. The Supply Chain Connectivity Initiative, a joint initiative of the Committee on Trade and Investment and the Economic Committee this year, is aimed squarely at improving connectivity along the entire supply chain. The goal is to identify and work out steps to resolve the choke points in the supply chain so as to bring about reductions in the time, cost and uncertainty involved in transporting goods. A Supply Chain Connectivity Symposium is being held in Singapore on the 16-17 of May to move things forward.
Within APEC there are huge differences in infrastructure quality between members: the World Economic Forum's Global Competitive Index ranks some APEC members close to the top of the scale, while others sit below 100th place. Hence, capacity building on logistics technology and skills can transform this industry into a real growth sector for APEC.
Since 1995, APEC's Transportation Working Group has executed over 80 projects, covering all transportation sectors and dealing with the spectrum of transportation needs. It has conducted workshops on international maritime standards and created an APEC Port Network. It promotes land transport and aviation safety standards, and works with APEC's Automotive Dialogue on vehicle regulations.
Looking ahead, the Group has recognised that it cannot look solely at unimodal transportation and has moved on to explore work in multimodal transportation and logistics. It is collaborating with APEC's Energy and Tourism Working Groups on fuel efficient aviation policies and practices, as well as promoting technologies that will improve connectivity. These collaborative efforts go a long way towards achieving seamless multimodal transportation and in promoting Regional Economic Integration.
In an effort to balance facilitation and with security concerns, the Counter Terrorism Task Force has also been working on a Trade Recovery pilot exercise to examine how the ports can swiftly resume operations following a terrorist attack. As I speak 7 APEC member economies are engaged in a desk-top simulation involving a scenario where a terrorist attack in the Port of Los Angeles results in a container with radioactive material exploding, causing massive disruptions to trade. This exercise is extremely valuable not only as a learning opportunity but also in building confidence in one another's systems.
When APEC was founded, transportation was already identified as an essential pillar of APEC's vision of a prosperous Asia-Pacific community based on free and open trade and investment.
APEC may not be sending goods and people into space, but we are playing an important role in making it easier and cheaper for transport companies to operate in the region. And ...so, it is not business as usual for APEC, APEC actually means business.