Citigroup’s economics team, led by Willem Buiter, just published an 80-page report titled “Trade Transformed: The Emerging New Corridors of Trade Power.” In it, they provide long-term forecasts for the global trade trends.
World trade is expected to outpace global GDP growth, with a reorientation of world trade towards emerging markets, particularly Asia. World trade is projected to grow at a 6.1% CAGR between 2010 and 2030, a material acceleration from the 5.4% CAGR for 1990-2010. By contrast, world GDP is projected to grow at a 4.9% CAGR between 2010 and 2030, versus 3.2% for 1990-2010. Additionally, CIRA economists estimate that by 2030, Intra-Asia will be the largest trade corridor, accounting for 16% of total world trade, up from 10% in 2010.
This is an extension of phenomenon called the “third wave of globalization” and is expected to last for at least four more decades.
According to Citigroup’s research, air cargo volumes grow at twice the rate of global GDP:
At this point, it’s probably obvious that the best companies for these trends are the air cargo players: FedEx and UPS.
With regard to opportunities created by the “trade transformation,” FedEx is likely the best positioned company in our coverage universe, as its international revenues comprise 45% of its total revenues, with the bulk of those revenues derived from Asia. The company estimates intra-China airfreight to be a $5 billion market, which will grow to $26 billion by 2020 (representing an 18% CAGR). recognising the growing importance of the intra-Asia and China markets, FedEx has taken significant measures to increase its footprint within the region and has become the only non-stop service from Asia to the mainland United States.
As for United Parcel Service, in order to capture share within the Asian market, the company has made significant investments in establishing its network, with a particular focus on China. It has three key air hubs in the region: Shanghai, Shenzhen, and Hong Kong. The company has also recently begun to operate flights out of Chengdu, a city further inland into Western China.
Both stocks are rated buys. FedEx has an $87 price target. UPS has an $80 price target.
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