London adjusts to global trade in the digital era

On a recent evening, the Vespertine, a 194m, roll-on/roll-off behemoth of a cargo ship flying the flag of Luxembourg, slipped its moorings, turned down the Thames and set off for Rotterdam.

Three hours later, emerging from the Thames Estuary into the North Sea, it would steam past the Lahore Express, a 260m Hong Kong-flagged container ship headed in the other direction.

The two ships’ brief meeting in the twilight was one of many that happened that day around the world. But because of its location it was a reminder of how London’s place in global trade has changed over the past century.

The Vespertine and the Lahore Express were plying a route that had a claim as one of the world’s busiest for most of London’s history. That night, however, they were almost alone as vessels of any substance destined for or from Thames and London. At the very same moment off Shanghai, where the sun was getting ready to rise over the port that now ranks as the world’s busiest, two dozen container ships, bulk carriers and tankers were under way in what looked like a frenetic green-and-red swirl of commerce when viewed on MarineTraffic, a website that tracks global shipping.

When confronted by this contrast, some may bemoan the glory days that have come and gone, muttering about the collapse of empire and industry. London’s place in global trade just is not what it used to be.

But there are plenty of reasons to believe that is fine.

Today, it is hard to find a city more global than London. While its infrastructure may, at times, seem creaky and its housing bubble daunting, there are very few cities better placed to benefit from 21st-century globalisation.

The main reason is that, these days, global trade is as much about the movement of services as shipping containers. Moreover, technology promises a new round of disruption.

The UK is the world’s second-biggest exporter of services, behind only the US, according to the World Trade Organisation. In fields such as banking, architecture and insurance, it plays a leading role in the global economy.

But beyond these service industries lies the digital world, and the future of London’s growing tech sector.

Canary Wharf may long have been a hub for London’s global trade, but the nature of its dealings has changed radically, writes Feargus O’Sullivan. Now a centre for financial services, Canary Wharf once dealt in humble fruit and vegetables — the name derives from a berth where fruit from the Mediterranean and the Canary Islands was offloaded in the 1930s. The massive towers built here since redevelopment began in 1988 have covered the channels that made such trade possible. The skyscraper at One Canada Square is built on land reclaimed from the former West India Docks.

When trade experts talk about the future of globalisation, a big part of the conversation is focused on how to guarantee crucial elements such as the free flow of data. If the trade barriers of the past were tariffs and quotas designed to protect domestic industries, then the 21st-century equivalents are issues such as data localisation rules and national firewalls. In a world increasingly driven by ecommerce and information, China’s vast censorship apparatus — dubbed the Great Firewall of China — is arguably the world’s greatest trade barrier.

While the worldwide trade in physical goods has grown only at a faltering rate in recent years as the global economy struggled to recover from the effects of the 2008 crisis, global data flows have surged. According to the McKinsey Global Institute, the consultancy’s research arm, between 2000 and 2012, global internet traffic grew from 84 petabytes a month (one petabyte equals a million gigabytes) to more than 40,000 petabytes a month, an almost 500-fold increase. Since 2008, call minutes on Skype, the internet calling service, have grown 500 per cent.

And that is just the start.

New online services such as music and video streaming have changed the way we consume entertainment. New manufacturing techniques, including 3D printing, are already altering companies’ supply chains. Getting a part to a far-flung client promises, within years, to become a matter of emailing specifications to a printer rather than putting the part on a plane or ship. Even agriculture is being transformed. Urban centres such as Singapore and New York are becoming home to “vertical farms”, where vegetables are produced at scale for local sale.

Where does London fit in?

The fact that the city has a claim as the technology industry’s European hub, and that it remains the continent’s undisputed financial centre, puts it in a unique place to benefit.

Investors are certainly taking note. Tech start-ups in London attracted more than $680m in venture capital in the first quarter of this year, almost half the $1.4bn they received in all of 2014, according to Tech City UK, the government-backed agency tasked with growing the city’s technology sector.

London’s tech industry prides itself on its global outlook. Start-ups are just as likely to be focused on providing services to Europe, Africa and other parts of the developing world as to the UK.

Mix that globally minded, tech-driven entrepreneurial spirit with London’s established service industries and it becomes easy to imagine a thriving future for the city in the new, digital trade.

London, of course, is not alone in pursuing that vision. But just who is pursuing a similar future is telling.

China’s current economic slowdown is the result, in large part, of its leaders engaging in the monumental challenge of turning an export-led, manufacturing economy into one that draws its energy from domestic consumption and services.

There is something to envy in the number of ships sailing in and out of Shanghai. But what China’s leaders really want is what Britain already has: a service economy with a promising future as one of the world’s most vibrant digital economies.