Once Covid-19 lockdowns are done, intra-Asia trade prospects look bright given socio-economic conditions
Because Asia, being poorer, has less to lose financially, there are fewer convulsions in the intra-Asia trade lanes, and what global convulsions do occur, have less impact than on other east-west trades.
Thus, the breakdown of the transpacific trade or the Asia-Europe trade, occasioned by the covid-19 epidemic, and more importantly to the hyperactive global response to it, has shattered projections of shipping outcomes this year and next.
Yet the intra-Asia trade, only partially immunised, has not been untouched. Its box volume makes it the biggest of the big three world trades, though not be value. But because of the covid-19 outbreak has had such an large impact on the bigger players, they have invaded intra-Asia turf to stem their losses elsewhere.
These majors have been putting the squeeze on regional and feeder operators by deploying bigger ships and launching new services even as trade volumes continue to grow, carrier executives told Newark's Journal of Commerce.
Most newbuilds are deployed in the major east-west trades, prompting a trickle-down or cascading effect when new mega ships are deployed, and older ships, but bigger ships, are assigned to in other lesser trade lanes.
“To be honest, we don't know how intra-Asia and feeder operators can make money,” said the head of one intra-Asia carrier. “If you have a big enough network, with some sectors making money while some are not, then hopefully you can still stay above water. But when more and bigger tonnage continues to be deployed in the region, it will be very tough for everyone - intra-Asia operators and common feeders alike.”
According to Alphaliner, the largest intra-Asia operators are Cosco Shipping subsidiary OOCL, Maersk’s Sealand Asia, Evergreen Marine, CMA CGM’s CNC, Taiwan's Wan Hai Lines, and SITC Line of China.
“Intra-Asia operators typically run services linking southeast Asia ports to north Asia including China, Korea, Taiwan, and Japan. As we know, the area is prone to bad weather with its fair share of tropical storms and typhoons; that causes delays and forces carriers to omit ports to recover their schedules,” said the head of one Southeast Asia-based feeder operator.
London's Drewy Shipping Consultants sees the problem in simlar terms. "One of the key trends identified is that global operators are encroaching more and more on the intra-Asian trade with larger vessels in order to fulfil a combination of both local and feeder requirements," said its top analyst Neil Dekker.
"By the same token, smaller regional players are diversifying more into other trades and are pulling out of the least profitable regional trades. Some of these include the high volume routes between China, South Korea and Japan where competition is fierce and freight rates are generally low once bunker surcharges and THCs are stripped out."
Profitability of the intra-Asia trades is a key unknown as there has been no real visibility on the development of freight rates in the region. Drewry said it has researched freight rate data on some of the key corridors to enable carriers to benchmark against their competitors and shippers to cost their supply chain movements.
The intra-Asian trade is a complex combination of regional local business as well as feeder traffic and often the two become mixed. Drewry has stripped out this business and identified the regional traffic on its own, but at the same time has also analysed the separate importance and influence of the huge feeder market.
Individual trade routes, such as the core China/ASEAN trade axis are analysed in detail, helping those involved in the trade to determine the future trend lines. Nor can India be ignored since so many intra-Asian services are extended west of Singapore to encompass this market.
Smaller regional players are also diversifying more into other trades and are pulling out of the least profitable regional trades. Some of these include the high volume routes between China, South Korea and Japan where competition is fierce and freight rates are generally low once bunker surcharges and THCs are stripped out.
Moving to the macro from the micro, one sees even more hope for the prospects of the intra-Asia trade. While much has been made of the new protectionist mood that has taken hold to placate growing political populism in the West, this will likely affect a narrower sector than feared, and will also afflict China, which has priced itself out the low-emd market that is the substance of the volume of the intra-Asia trade.
A quarantined western world, locked down for so long will be in need of replacements for goods and services needed to sutain the recovery from such a lenthy suspension of industrial activity. This demand surge will benefit the intra-Asia trade as China's role is likely to diminish for diplomatic reasons, and that trade to be tranferred to south and south east Asia as well as Korea and Japan.
There are some who see the future as a boom time for these ASEAN countries, namely Indonesia, Vietnam, Cambodia, Singapore, Malaysia, Brunei, Philippines, Laos, Myanmar, and Thailand. To which one might add India and Pakistan. Hitherto China has dominated volumes on the east west and intra-Asia trades. Given its growing diplomatic isolation, and steady outward reshoring in recent years, these junior partners, particularly Vietnam which got in the game early, have benefited. And there is every sign that the other countries will benefit too.
Add to that the growth of ecommerce, bolstered by the huge expansion of mobile phone towers on the region and the advent of non-Hauwei 5G web service, and the ability to deliver goods to the interior of the developing - rapidly developing - countries, the future looks good for the region.
While the intra-Asia dollar volume is not expected to rise in the short-term, it appears that the road to profitability will be in cost reduction with efficent cargo handling throughout the supply chain. Having achieved that in good measure, one can be assured that the future, barring covid-like catastrophic events, is well assured.