What's happening in Intra Asia

 

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Wait until the full force of India kicks in and the burgeoning intra-Asia trade explodes

With its 1.3 billion people and growing middle class, India is now poised to make a China-scale impact on the already gargantuan, but still financially feeble, intra-Asia trade.

As an import destination, less than 22 per cent of Indians live under the global poverty line, nearly an eight per cent reduction from 29.8 per cent over a two-year period. Forty million now are classified as middle class in India. One estimate even sees India's middle class rising to 475 million by 2030.

Slowing things down though, is the sorry state of India's clogged, outmoded transport infrastructure and archaic bureaucratic procedures. While these problems are being addressed by a reform-minded government, there is still much to do before serious and widespread technical flaws are put right.

One enthusiast is the Hong Kong Shanghai Banking Corporation (HSBC). Natalie Blyth, head of trade finance division at HSBC, oversees more than USUS$500 billion of global trade flow.

First, she points out that for 20 years, global trade has been twice to twice and half times the rate of GDP growth, though it dipped during the financial crisis but then bounced back. Then slowed again until trade growth fell to less than GDP.

"But the macro environment is becoming much more positive, and we are seeing growth again." she said. "We are seeing a big shift from West to East on a number of fronts like the three billion people joining the middle class. It is a force that no one policy maker can change. I direct my team to look East, not West," said Ms Blyth.

"I think there's a huge opportunity for HSBC and India. We turn to Asia and India will inevitably turn to Asia, by which I mean there will be an increased amount of trade between Asian counterparts than it has been historically done," she said.

"The services component is a sweet spot for both of us, and India will want to maintain its leadership position. So, I am optimistic, but the corridors of trade for India will change."

No country can replace the US or China, Ms Blyth cautioned, "but you will see some diversification in the in the top 10. Half of HSBC's trade business is in Asia, which is growing faster than other regions. "

The difficulty world trade faces is protectionism, but in the short- and mid-term, this may be good for India and many economies in the vast intra-Asian trading area.

As rising protectionism and tariff wars threaten, both China and the US may shun each other's products and services. This may well position India as a supplier of high-tech goods and services while less advanced countries in the region will supply popular low-end items, thus increasing volumes, reducing unit costs, and widening product availability still more.

"So, we anticipate more intra-Asia regional activity and India is well placed to benefit from that," said Ms Blyth.

The risk that global trade will be derailed is much less, she said. Not that it will rise to 2.5 times of GDP any time soon, but it should settle in at 1.2-1.3 times growth, which is viable business model.

"Protectionist measures and the potential for trade wars are making people look for partners to trade with closer, which is driving more inter-regional activity," she said.

Representing something of a case study is the development of the Port of Chennai on India's east coast, once so seriously plagued with congestion that it was becoming moribund. But new intra-Asia calls are proving this is no longer the case as the port rebuilt its container volume and market share.

Chennai represented 36 per cent of the market in February, a gain of two per cent over the previous month. By volume, the public port handled 126,847 TEU, out of the total 352,461 TEU shipped to and from the region.

That improvement, albeit modest, is significant in an oversupplied and very competitive environment, as the total South India trade during February was static month to month.

The five-vessel China-India Service (CI3), a joint operation between Wan Hai, Cosco, Hong Hong Kong's OOCL, Inter Asia Line, and X-Press Feeders, then began providing weekly calls at Chennai.

The joint loop rotates through Shanghai, Ningbo, Hong Kong, Shenzhen-Shekou, Singapore, Port Klang (West Port), Port Klang (North Port), Chennai, Kattupalli, Port Klang (North Port), Singapore and back to Shanghai, offering a 35-day round-trip.

Sensing an opportunity to expand its foothold in the emerging economy, new South Korean carrier SM Line has also joined the consortium through a slot-charter deal, to be marketed as the East India Service 2. This complements SM Line's East India Service, which covers Chennai and Visakhapatnam on the east coast.

Although the market share increase is a positive sign for Chennai, moving forward there is unlikely to be any pause regarding the competitive forces it faces, as most of the South India services have multiple port calls to maximise volume.

As a result, Adani Group-owned Kattupalli, Chennai's closest rival, also benefits from the CI3 addition. The relatively new Kattupalli Terminal, 16 miles north of Chennai, improved its market share to 13 per cent in February, from 12 per cent in the previous month, accounting for 46,006 TEU, versus 42,637 TEU in January.

Despite growth in cargo volume, perhaps because of it, Chennai's productivity rates continue to wane. Containerships calling there took an average of 32.8 hours to turn around, compared with 27.13 hours last year, with average gross crane rates dropping to 25 moves per hour from 27 the year before. As a result, average output per ship berth day for container operators plunged to 35,796 tonnes from 37,057 tonnes.

All this, despite the operational participation of DP World and PSA terminals, with a combined annual capacity of three million TEU, though actual utilisation is 50 per cent with a volume of 1.4 million TEU.

Another reform that increases to draw in ships to Indian ports is the abolition of restrictive cabotage rules that have long prevented foreign-flag vessels from moving containers between Indian ports.

New Delhi's objective is to boost national ports and reduce the flow of domestic cargo through foreign transshipment ports, principally Colombo, which has captured an estimated 33 per cent of Indian export-import cargo in fiscal 2016-2017.

Colombo accounts for the largest portion of Indian transshipment volume, followed by Singapore; Port Kelang, Malaysia; and Jebel Ali, United Arab Emirates, official statistics show.

Now foreign carriers can transport laden export-import containers for transshipment and empties containers between Indian ports freely.

Said Maersk South Asia manager Julian Bevis: "This will bring greater competition to the feeder market, which in turn would benefit local importers and exporters. Indian ports would also benefit as this positive change would allow them to compete for container traffic currently handled in adjacent regional hub ports."

Said the Indian Ministry of Shipping: "It is necessary to reduce/eliminate transshipment of Indian exim [export-import] containers through foreign ports and reduce the cost for repositioning of the empty containers.

Agreeing, Krishnapatnam Port Container Terminal (KPCT) director Vinita Venkatesh expressed confidence that the policy change will be a boon for the terminal, as the company works to woo more transshipment calls on the strength of sophisticated infrastructure and advanced operating systems.

"Apart from the origin/destination cargo of the KPCT hinterland, the transshipment cargo potential represents an exciting market segment that can be explored," Ms Venkatesh said.

DP World's International Container Transshipment Terminal, also known as the Vallarpadam Terminal, at west coast Cochin, plans to regain Indian cargo transshipped via Colombo. It has enjoyed a 13 per cent growth rate last year, but high vessel-related charges are said to be the main factor frustrating DP World Cochin's efforts to reverse the Colombo effect.

The effort continues with the government planning to build a dedicated deepwater, greenfield hub port at Enayem, near Colachel, Tamil Nadu, on west coast near the southernmost tip of the subcontinent. This involves an investment of $4 billion in three phases. While those plans are still in the approval stages, a 1.8 million-TEU Adani Ports' deep-draft project at Vizhinjam, about 140 miles from Cochin, will be a closer bet for the emerging market economy's transshipment ambitions.

Given the rapid development of India under a new go-ahead government, it is now reasonable to expect it to make a China-scale impact on world trade, but first by first making an enormous intra-Asian contribution.

With its growing middle class, the size of which surpasses the population of Canada - itself a G7 nation -  one can only think of India and its contribution to the intra-Asian trade as tipping the global balance and bringing something approaching an economic miracle of prosperity to the world at large.

 


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Intra Asia Trade Specialists

Nippon Express (HK) Co., Ltd.
Visible & Strategic Logistics
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