Already first in trade volume, intra-Asia stands to become first trade value
 MOST agree the big player in the intra-Asia trade is likely to be India in the coming decade. It is not that China has shot its bolt, but rather abandoned its old crossbow from which bolts are shot to more sophisticated weaponry to compete in the most advanced markets in the world.
But with more goods made - and consumed - in the region's markets, already the biggest by volume, will become even bigger. As consumer spending expands, so too will manufacturing.
Southeast Asia is set to continue to grow in the lower-end at China's expense. For its part, China is working to shift its manufacturing sector to more complex, higher-value products such as power equipment, precision tools and robotics.
IHS expects India to increase its share of manufacturing as a percentage of GDP from its present 15 per cent to something approaching 30 per cent, the average output from Far East - the focus of its annual TPM (Trans Pacific Maritime) Asia conference from October 11 - 13 in Shenzhen.
What must be kept in mind is that industrial sectors that are growing today are different from those that were growing 10 years ago. In India, a reform-minded government is working to improve the country's trade infrastructure and to grow its manufacturing sector.
Indonesia is a sleeping giant, which, like India, may awaken to its opportunities now that it has been forced to do so by the slump in commodity prices on which it has depended. Should this happen, Indonesia might become more energetic and effective in manufacturing as India has become. Already, as if to prepare, Jakarta has launched an ambitious seaport upgrade programme.
And these are just two of the factors to weigh in the rebalancing of Asia's trade. Container volumes from China to the US and Europe are still growing, but there is also a palpable shift in cargo flows that should not be missed.
The shifts result from permanent factors, such as rising labour costs in China that induce manufacturing to migrate to more affordable countries such as Vietnam. Also currency movements play a role.
Not only has the yuan risen against the dollar making Chinese labour less affordable, there are also depreciations of such currencies as Brazilian real and the British pound that have sent Chinese exports tumbling - 60 per cent in the last quarter of 2015 in the case of Brazil. And perhaps for the same reason, this comes with a rise in Brazil's containerised exports to China and the rest of Asia.
Then there is the yet to be fully felt impact of e-commerce. China's top e-tailer Alibaba reckons one-third of the US$3 trillion global e-commerce market is cross-border trade. What's more, a substantial portion of the products ordered online are carried by ocean freight, much of them, Asia bound.
China's top markets for inbound goods ordered online are the US (84 per cent), Japan (52 per cent) and the UK (43 per cent). If projections in the growth of e-commence are matched elsewhere in Asia, how will shifting manufacturing and e-commerce re-shape regional trading patterns of the future? It certainly stands to change the nature of backhaul.
Clearly, understanding the dynamics of this growth must be the key to developing supply chains that use modern hardware and software. The aim will be to seamlessly integrate retail and logistics into an efficient distribution system that includes cross-border e-commerce-related services such as quality checks, cost-effective handling of returned items, not to mention smooth as silk regulatory compliance.
The greater part of Chinese manufacturing that dominated the first decade of the 21st century, and then migrated elsewhere in the face of rising production costs. This led to growth in production in electronics output in Vietnam, where export value soared from US$6.9 billion in 2011 to $45.8 billion last year. Such is being experienced to a lesser degree throughout Indo-China, Burma and Bangladesh and has long impacted Thailand.
Coupled with rising production are local factors across Southeast Asian economies such as a fast-growing middle class that drives economic activity and stimulates trade between countries.
This means more container cargo moving about the region and a rash of new intra-Asia services and mainline feeder connections. This in turn has brought about rising concerns about these long-neglected ports' ability to handle bigger ships that have come cascading down from east-west trade where they have been displaced by leviathans that have flooded the market in recent years.
Perhaps success of such developments will be measured in congestion surcharges. But nothing stays the same, and already there are fresh reports in of dredging being done, access roads being built and cranes purchased to meet the rising tide of cargo that has come to the these ports as populations become more urbanised and join the consumer world.
There has been much talk of a "new normal" in the industry, which in this case tends to mean accepting that the salad days of galloping double digit Chinese GDP growth are over and unlikely to return. And we are all going to hell in a handcart in consequence.
But any consideration of a new normal must include low, and perhaps permanently lower, oil prices because there are so many sources of supply today. But one can expect less oil to be used as communications supplants transport. Moreover, technological developments - such as 3D printing and miniaturisation has been seen as fewer and smaller things to ship.
The way Olaf Merk, administrator ports and shipping for the International Transport Forum (ITF), a unit of the Organisation for Economic Co-operation and Development (OECD), sees it, "we buy less stuff, and instead we buy the right to use stuff when we need it. This means that less stuff needs to be produced, and transported. Instead of books we now have e-books, so more immaterial consumption.
"Commodities might still be needed as the materials needed for the printing, but only to a limited extent if the circular economy would really take off: most of the components of the local production would then come from re-use and re-cycling," he said.
Such things as mega ships and shrinking crew sizes combined with these factors contribute to lowering freight rates, which may well be part of a new normal as well. They may eventually be compensated by self-driving ships, trucks and trains and new ways of life in which more automated productivity can support larger populations requiring less to sustain the same level of affluence one enjoys today.
But for the short-term one can expect larger vessels cascading down from the east-west trades add to the regional capacity and keep downward pressure on rates, with no compensatory aspects in immediate prospect.
Thus, structural changes in the shipping industry together with global and regional economic and political trends continue to impact container port and terminal development in the region.
Ports are acutely aware of the competitive need to upgrade to handle bigger vessels and undertake expensive investments in infrastructure and equipment.
Yet in a more competitive environment for both transshipment and gateway cargo, the prospect of declining throughput and, ultimately, overcapacity looms large for ports in some part of the region, particularly China.
Today, a sustained period of record low freight rates across the major trades is having a profound effect on the container shipping industry. With losses sometimes in the billions - MOL lost $1.5 billion in its financial year that ended March 31 - and even Maersk Line barely managed to break even.
Not to be overlooked, is the fact that we also are in the midst of a period of consolidation. CMA CGM's acquisition of NOL (and its APL container carrier) is expected to be finalised by the time TPM Asia opens. China Cosco Shipping is busy bringing together Cosco Container Lines and China Shipping Container Lines, and Hapag-Lloyd is merging with the United Arab Shipping Co. A some form of tie-up of South Korea's two debt-ridden carriers is in the cards even if it is a just a matter of one acquiring the assets of the other.
These mergers have forced a redrawing of shipping alliances, with only the 2M of Maersk Line and Mediterranean Shipping Co unscathed. Next April, the Ocean Alliance and the curiously named THE Alliance are expected go head-to-head with 2M on the world's major trade lanes.
But such alliances are made for carriers not shippers, who will have their choices narrowed. What will this mean for shippers preparing for their annual contract negotiations on the Asia-Europe trade in the fourth quarter and on the transpacific in early 2017?
Does having three alliances instead of four make it easier for shippers and forwarders or does it increase risk? Do shippers and forwarders even care how many alliances or carriers there are as long as their services are reliable?
The rebalancing of Asia's trade has begun. Although container volumes from China to the US and Europe was still growing through the middle of the year, an obvious shift in merchandise flows is underway. The shift results from permanent factors, such as rising labour costs in China that is pushing manufacturing to countries such as Vietnam, and fluctuating factors such as foreign currency movements. But beyond that, there are changing conditions in the intra-Asia the scope and significance of which dwarf those factors that command our immediate attention today. |
