Intra-Asia: Caveats galore, but world's biggest trade definitely has a bright future
 In the less than container load (LCL) world that is the intra-Asia shipping market, the major players are thinking small in a big way.
In doing what they can to raise themselves up from lower ends of world's economic spectrum, they focus on having the poor made richer without having the rich become poorer.
With the lower end becoming more productive, it is reasoned that prosperity will be accompanied by big increases in near-shore trade where prices can be kept within reach of people of the same economic class as the exporting producers.
In the last decade, the intra-Asia has grown from the third largest in the world to become the biggest by container volume behind the higher volume and much higher value Asia-Europe and the transpacific lanes.
That's not to say there are not problems - more of that later - but for now let us deal with the plus side of what stands to be the biggest game changer in world trade in coming years.
Of course, such progress is asymmetrical, and will come as an extension of differing economic policies, which are at once populist, fundamentalist, and as one Bloomberg analyst said, a "radical" theme. Each, that is Japan, China, India, Indonesia, is bent on moving the big economic levers to a greater extent than ever before to leave their troubled status behind. Of course, in Japan's case, it is a question of maintaining its long-ago achieved first world status in the face of financial and demographic headwinds. But the economic measures taken by Tokyo are no less radical for all that.
In Indonesia and the Philippines it is more a question of keeping the ball on the hop. In Jakarta. the government of President Joko Widodo expects GDP to edge up again this year as infrastructure spending continues to underpin economic activity, and both private consumption and private investment are showing signs of firming. says the OECD (Organisation for Economic Co-operation and Development). In the Philippines, President Rodrigo Duterte, who is taking radical steps to root out corruption, has been rewarded by a surge in investment and strong consumption, increasing GDP by 6.9 per cent. Despite the strong domestic demand, Filipino inflation will be lower this year than anticipated, says the Asian Development Bank.
In Japan, Prime Minister Shinzo Abe's government is embarked on a programme to break out of the country's deflationary slump. His "Abenomics" is a matter of navigating his four-year-old reform agenda between Scylla and Charybdis so as not be destroyed by either of these monsters, that is, by keeping consumption taxes high and corporate taxes low, all the while staving off the appreciation of the yen and provoking a lethal revolt in the population. But it looks as if his ruling Liberal Democratic Party will approve the extension of his presidency to nine years, enabling him to remain in power till September 2021.
In China, President Xi Jinping is banking on domestic consumption, which would open opportunities for near shoring exports. In India, Prime Minister Narendra is opening up to foreign investment and rooting out inefficiencies synonymous with Indian bureacracy.
Caveats there are aplenty. Bigger volumes do not necessarily mean bigger profits, as many experienced hands point out. One big risk facing the box trade on intra-Asia routes are ports that are unable to cope with mega cargo flows from mega-ships, warns Maersk's regional line, MCC Transport CEO, Tim Wickmann.
Carriers expect volumes to grow in as a fast-growing middle class stimulates trade. While manufacturing is leaving China, "the volumes haven't been there, which is why there has not been much congestion, but ports and infrastructure is still the biggest worry," he said.
Shippers should to remember that in this trade, containers are loaded and off-loaded from feeder vessels and the ships call at a number of different ports, so the number of moves per box could be doubled, he said.
The managing director of CMA CGM's intra-Asia specialist, Cheng Lie Navigation Line (CNC), Robert Sallons, agrees, saying he expects congestion to be a problem in the future.
"Should the volumes start to go up on a global basis "intra-Asia also includes feeder services for the mainline operators - we will see congestion becoming an issue across all intra-Asia services because most of the ports are at capacity. I do predict that to be a future problem, but when, I don't know," he said.
Fierce competition and weak freight rates also play a role in making life difficult for carriers in the world’s largest container trade.
One in four containers that moves around the world is carried in the intra-Asia trade, which has more than 70 shipping lines and 10,000 port pairs. And there are many submarkets within the trade itself.
Intra-Asia is expected to grow just about three per cent in 2016 and slightly better in 2017, but it comes from a very large base. What you won’t see in that three per cent is that trade growth was very uneven in 2016, with Mr Wickmann calling it “the most awkward growth scenario” he’s ever seen.
“All the growth is coming from China. There is no growth from any of the other countries in the intra-Asia market,” he said. “Taiwan and Japan have dropped by double digits on the intra-Asia trade, but China is such a dominant market that when China grows, the whole trade grows.”
Yet even with the growth, intra-Asia profitability is following the same path as other east-west trades and is unlikely to improve in 2017. The fragmented nature of the trade and the cutthroat competition places relentless downward pressure on rates, dragging prices to levels that make it impossible to improve yields.
But Edoardo Podesta, managing director for Asia air and sea logistics at Dachser Far East Asia, said the Germany-based company is growing fastest in intra-Asia compared with other trades.
“Intra-Asia is less subject to the typical peaks in the west,” he said. “It has a more stable flow of cargo, and the transit times are reduced to maybe four days, so the planning needs are less than on the Europe and US trades.”
Yet intra-Asia trade remains healthier than the major east-west trades, but that has spurred regional container lines to add services. It has also prompted major container lines to shore up their weaker volume in the major trades via intra-Asia services.
What's more, Hong Kong's Orient Overseas Container Line (OOCL) has expanded its existing CHL service between China and Ho Chi Minh in Vietnam and Thailand gateway Laem Chabang, giving wider port coverage. Shanghai-based China United Lines recently began a new weekly service connecting Korea and China to Southeast Asia, and MCC Transport has improved Southeast Asia access to Cambodia while expanding Cambodia’s reach into North Asia.
Despite drawbacks, coupled with the over supply of tonnage as old panamaxes cascade down on the trade, however ill-suited to it they may be, the future is bright for the intra-Asia trade.
And if one looks at the GDP growth of the countries involved and the reviving economies of the west, it is hard to be anything but optimistic about the intra-Asia trade in the medium and long term whatever justifications for doubt in the near future.
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