Logistics executives share the International Monetary Fund’s view that 2018 will be a stronger year for emerging markets. So concludes Agility Logistics’ Emerging Markets Logistics Index 2018.

Nearly two-thirds say the IMF’s 4.8 percent emerging markets growth forecast is “about right,” contrasting with their opinion last year, when a significant minority (42.8 percent) felt the IMF was being too optimistic in its 2017 forecast that emerging markets growth of 4.6 percent.

Over 500 supply chain and logistics executives worldwide shared their views of the 2018 global economic outlook, prospects for emerging markets, key growth drivers, and trends affecting emerging markets countries.

Small and medium-size businesses – those with fewer than 250 employees – are going to be the biggest beneficiaries of emerging markets growth, industry executives believe. Fifty-six percent say SMEs operating in emerging markets will grow the fastest; 26.2 percent say large companies will grow faster.

Supply chain professionals are baffled by the Trump administration’s high-stakes brinkmanship over NAFTA and cannot agree on who will win and lose in renegotiations. Logistics executives were split on whether an updated agreement would help Mexico (24.3 percent); hurt Mexico (21.8 percent); or leave trade broadly unchanged (25.7 percent). The original agreement, widely credited with generating growth in the United States, Canada and Mexico since it went into effect in 1994, has been derided by President Trump as the “worst deal ever made.” US negotiators have taken a hard line in renegotiating talks.

Few in the logistics industry see reason to worry the UK’s departure from the European Union will damage emerging markets economies, even though Brexit will force the UK to negotiate its own trade agreements with non-EU countries. Nearly 45 percent of executives say emerging markets will be unaffected; 25.4 percent said emerging markets stand to gain from Brexit.

India and China remain, by far, the leading investment destinations for the logistics industry. Vietnam leads a second group that includes UAE, Brazil, and Indonesia. Among the countries drawing increased interest from the industry: South Africa, Malaysia, Turkey, Philippines, Thailand, Myanmar, Kenya, Egypt and Bangladesh. Countries attracting less investment interest from the logistics industry: Brazil, Russia, Saudi Arabia, Mexico, and Nigeria.

Cheap labor continues to slip as a prime factor in how logistics professionals view emerging markets. They rank economic growth, foreign direct investment, trade volumes, location and transport infrastructure ahead of cheap labor as keys to making a country an important emerging market.

Egypt surged six spots to No. 14, the largest jump by any country in this year’s Index. The improvement in Egypt’s business conditions is reflected by the astonishing 26-spot jump it made in the Market Compatibility portion of the Index, among the largest leaps by any country in any category in the nine years since the Index was first compiled. Infrastructure investment helped push Egypt’s Market connectedness rank to No. 20, up three places. Egypt helped secure IMF loans and an endorsement of its economic reforms by agreeing to float its currency and cut subsidies.

Algeria, Ukraine, and Ethiopia were among the countries making big strides in improving business conditions. Each jumped in the Market Compatibility portion of the Index. The business climate deteriorated in Sri Lanka, Cambodia, Tanzania, Lebanon, and the Philippines. Countries showing the biggest improvement in infrastructure or market connectedness were India, Indonesia, Turkey, Egypt, Iran, Pakistan, Argentina, and Bangladesh. Infrastructure rankings fell for Kazakhstan, Sri Lanka, Colombia, Brazil, Thailand, and Kuwait.

Trade Lanes: The Largest and Fastest-Growing Air and Sea Routes

The busiest emerging markets air freight lanes originating in the EU or US tend to connect to larger emerging markets in the Index: China, UAE, India, Mexico, Turkey, Saudi Arabia, Brazil, Russia, and South Africa. Volume growth for five of these lanes in 2017 is forecast to be in the double digits, while three more are in the high single digits. EU-South Africa is predicted growth of 3.8 percent, while EU-Saudi Arabia is the only lane where a volume contraction should be expected.

Flowing in the other direction – from emerging markets to the EU and US – the picture is more mixed. Five of the top 10 lanes are anticipated double-digit growth, including the crucial two Chinese lanes, which account for almost half of emerging markets tonnage alone. However, three are expected to contract (Ethiopia-EU, Mexico-EU and Chile-US), while the key export lane for flowers of Kenya-EU is forecast tonnage growth of just 0.5 percent.

US and EU ocean freight to China accounts for over a quarter of all tonnage to the Index’s 50 emerging markets. US-China ocean freight volumes are predicted to drop by 5.0 percent in 2017 (though containerized freight is doing better), as EU-China volumes increase by 6.7 percent.

US-Mexico (+13.3 percent) is the best performer among the top 10 lanes, followed by EU-Turkey (+9.5 percent), and US-Colombia (+8.7 percent).

Among the 25 fastest-growing lanes, several are experiencing drastic increases in cereals tonnage and other bulk goods. Among EU/US origin ocean freight lanes it is almost always bulk goods that drive sharp volume growth swings.

Emerging markets sea freight exports are much more diverse compared to imports, which are overwhelmingly comprised of agricultural goods. This is best exemplified by the largest exporter of all, China, whose most important export groups include a vast array of manufactured goods. In 2017 China-US ocean freight volumes are expected to increase by 7.2 percent, while China-EU will see more tepid growth of 1.8 percent.

Overall, EU ocean freight from emerging markets origins is predicted to grow by 6.8 percent in 2017, while inbound US ocean freight is projected to decline 9.8 percent.