Advantage lurks in downmarket nature of world's biggest but least valuable trade
 Intra-Asia, the world's biggest, yet least lucrative, trade by volume is facing interesting times this year and the next as the industry faces IMO 2020, the UN's dreaded sulphur cap next January.
Unless there is substantial non-compliance to the UN's International Maritime Organisation's (IMO) virtual ban on sulphur emissions from ships, this is the first time such draconian regulations will be applied to the intra-Asia trade.
Maritime think tanks like BIMCO and Drewry say weaker lines may well go bankrupt if they cannot get shippers to pay the much higher fuel costs coming their way in January.
On one hand intra-Asian governments can now impose substantial fines on non-compliant shipping lines. On the other hand, they may well drive shipping lines into bankruptcy.
By doing so, they also increase domestic unemployment, cutting themselves off from foreign exchange earnings. This may well undermine the will to enforce rules that are more to the taste of super-sensitive western electorates, or more to the point, their bureaucracies that fund environmental lobbies which drive them in directions they are already pre-disposed to go.
At the heart of these draconian strictures is the "global warming" cause, beloved by bureaucrats, who are anxious to create and enlarge inspectorates and various judicial and quasi-judicial bodies to police the rapidly expanding panoply of regulations. But the supposed terrors, that supposedly justify, the regulations, have long lost traction with the public, which typically ranks climate change as the 16th to 18th most worrying issue.
Given the problems facing the intra-Asia trade, be they regulatory threats ahead and the lack of profitability that has dogged it for decades, it is fair to ask whether there is any light at the end of the tunnel.
First, it must be remembered that the intra-Asia trades are tied to major east-west routes, with much of the regional shipments being driven by the production of components assembled in a final Asian country before being shipped to the foreign markets.
This connectivity with the major trades means that some carriers have treated intra-Asia routes as loss leaders. Freight rates on many routes often do not even cover the loading of a ship, let alone shipping costs.
As it stands, the Asia-European container trade looks likely to stay in the doldrums with no more than two per cent growth, according to BIMCO. That means that long-hauls into northern and southern Europe, where mega ships are perfectly suited to reap the benefits of economies of scale, will suffer unless cascading accelerates.
From the start, the Asia-Europe outlook has been gloomy for 2019 and the gloom is likely to be extended, if consumer behaviour does not change dramatically from that experienced in the past four years, the exception being 2017. Demand growth on the Far East to Europe trade lane: 2015: down 3.2 per cent; 2016: up 2.9 per cent; 2017 up 4.5 per cent; and 2018: down to 2.2 per cent growth.
The health of long-haul mainlane trades are vital for the overall prosperity of the container shipping market, and appear to be in for what could become a tough year with several pitfalls. Trade tensions between the US on one side and China and Europe on the other, are coming in on top of a tendency for traditional consumers of containerised goods in the West to show signs of being saturated in Europe.
To finding a light to the end of the tunnel, the intra-Asia trade may well look to its key liability as an ironic solution to its dilemma. That is the very poverty of its overall trade value. The irony of its situation is that while it is the biggest trade by container volume, the intra-Asia trade carries cargo of the least value.
It may well enjoy the benefit of its position in its downmarket because it is the most affordable, just as in the 1980s recession and the economic downturn that followed brought uninterrupted prosperity to companies whose low-value goods, typically toys, games and a trinkets made of plastic and cardboard, continued to enjoy among the less affluent consumers with the help of attractive, colourful packaging.
Of course, competition is stiffer given the arrival of the Korea Shipping Partnership, an alliance of South Korean container shipping companies that first targeted southeast Asia trades. The alliance of 14 carriers, set up by the Korea Shipowners' Association, aims to improve operating costs and address the persistent supply-demand imbalance on intra-Asia routes.
Hyundai Merchant Marine and SM Line are the only two mainline operators in the alliance, which also includes Sinokor, Heung-A, Namsung Shipping, CK Line, Pan Continental Shipping, Dongjin Shipping, Pan Ocean, Dong Young Shipping, Doowoo Shipping, Taiyoung Shipping, Korea Marine Transport Co, and Hansung Line (an affiliate of Sinokor).
Fourteen carriers operate a combined capacity of 308,000 TEU on intra-Asia routes, short of the 1.3 million TEU operated by the main non-Korean carriers in the trade.
Arguably the main obstacle to the Korea Shipping Partnership is that Korean carriers are fiercely competitive with each other. Case in point: KMTC and SM Line opted to stay out of the HMM + Sinokor and Heung-A partnership and pursue their own growth plans, Alphaliner noted.
Fierce competition extends across all carriers in the region. Scores of shipping lines compete for the estimated 30 million TEU a year that moved among thousands of port pairs across Asia.
What well may save the trade this year and next, or at least mitigate its lack of profitability, is to capitalise on its downmarket nature, leveraging its advantages and that of the exponential growth of online retail markets as e-commerce spreads into the depths of Asian hinterlands with ever greater connectivity as communication towers are erected throughout once inaccessible regions, and now increasingly served by road networks.
It must be remembered that the percentage of people living in extreme poverty globally fell to a new low of 10 per cent, reflecting steady progress, according to the World Bank. The number of people living on less than US$1.90 a day fell during this period by 68 million to 736 million.
This virtuous circle of increasing affluence of the world's poorest means opportunities are growing to create greater affluence in the higher reaches of the downmarket, which is likely to become a mid-market tranche within a very few years.
Given these factors, it seems reasonable to conclude that while intra-Asian profitability remains elusive in the short- and mid-term, parallel developments point to a rosier future in years to come.
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