‘Friendshoring’ is the future as global supply chains reset to regional

A study by the Dubai Multi Commodities Centre claims geopolitics is driving a shift toward regionalisation

Global trade is set to become increasingly regionalised and supply chains will be 'reconfigured', according to a new report by the DMCC.

Geopolitics and macroeconomic risks are causing the world's economy to shift towards regionalisation and away from globalisation, a major report claimed on Tuesday.

The Future of Trade: Decouple and Reconfigured by the Dubai Multi Commodities Centre (DMCC) said heightened geopolitical tensions and economic risks have meant trade is increasingly focusing on the regional rather than the global and, as a result, supply chains are resetting as companies “prioritise reliability and security over cost”.

“Regionalisation is the new reality driven by geopolitics,” said Dr Hamad Buamim, chairman of the board at DMCC told The National.

Introducing the report, which is a compilation of interviews with more than 150 business leaders, experts and trade specialists as well as data analysis, DMCC's chief executive and executive chairman, Ahmed Bin Sulayem said that “geopolitics and macroeconomic uncertainty are driving the formation of new trade hubs and corridors, restructuring supply chains in the process”.

“Global trade is going through a period of profound change and with it a new range of opportunities for businesses.”

Transformative period

These opportunities will be most profound in Asia and the Middle East, as these regions are set to play an increasingly important role in world trade, as new alliances take shape and companies look to de-risk their supply chains away from what was once the basic model of globalisation.

“Global trade faces a transformative period ahead,” said Feryal Ahmadi, chief operating officer at DMCC.

“This [period] will be marked by the disillusion of traditional trade networks and in their place, we will see regional alliances, where partners and trusted allies come together to take centre stage.

“We find ourselves pushed forward by a tornado of change.

“We all see the rivalry that's ramping up between the US and China; there are open conflicts in the Middle East and Europe and about 80 nations around the world and maybe half of the world's population will be going into the polls in 2024.

“All of these events have the potential to unleash new waves of nationalism and trade protectionism, threatening to derail our path to global economic recovery,” she added.

Nonetheless, the DMCC report does predict that the global economy will continue to grow in 2024, albeit by a modest 2.6 per cent. The services sector will provide much of the strength, especially as AI becomes integrated into supply chains and trade finance.

Terms such as 'friendshoring' and 'nearshoring' will become much more commonly used in global trade analysis, as countries and companies seek to mitigate the risks to their supply chains in the face of an uncertain world by seeking out familiar trade and political allies closer to home.

Neutral stance

Companies have been acutely aware of disruptions to their supply chains for some years, following the Covid pandemic, Russia's invasion of Ukraine and the war in Gaza, as well as tensions over tariffs and technology between the US and China.

As such, businesses are now valuing efficiency and reliability over cost when it comes to their supply chains. For example, this may mean manufacturers will switch their sources of supply from China to the likes of Mexico or Vietnam.

Dr Buamim believes in an increasingly tense geopolitical world, trade hubs like Dubai are especially well-placed, not least because of its advanced trade infrastructure, but also “from being politically neutral”.

“Countries like Saudi Arabia and the UAE will benefit from taking this (neutral) stance,” he told The National.

The Future of Trade report highlighted geopolitical tensions, particularly between the US and China, as the single biggest challenge to the growth of trade. Businesses and markets abhor uncertainty and conflict, and while trade is predicted to grow, it'll be in a very different way from the way it did 20 or 30 years ago.

Bilateral and multilateral regional trade agreements will increasingly make the World Trade Organisation's goal of unfettered worldwide trade a distant dream.

“If we had a choice between regionalisation and globalisation, we'd choose globalisation again, but we don't have a choice, Dr Buamim told The National.

“Globalisation has, unfortunately, been failing for the last 20 years. The WTO couldn't do much and we believe it's just going to keep failing going forward.”

“Regionalisation is the way forward.”