New Asia is restructuring global trade

Ahead of Ti’s Emerging Markets Logistics conference in Singapore next month, we asked some of Asia’s leading transport and logistics thought-leaders to share their views about how the continent’s economy is evolving and what this means for global trade flows and logistics demand.

Asia may still be the factory of the world – a source of the cheap labour and economies of scale which enable the mass production of a wide range of consumer goods. But the old economic paradigm of ‘Asia’ (ex-Japan) as simply a source of exports for ‘The West’ has been obsolete for some time.

In its political, social and economic complexity and sophistication, the New Asia is no less influential on global trade and logistics. But the flow of that trade is by no means one way and, increasingly, it is not even always with ‘The West’. North-South trades are thriving and Intra-Asia volumes by air and sea are now colossal. Indeed, numerous Asian countries report that their largest trade partners are no longer found in Europe and the US but are instead closer to home.

Catch-all theories explaining this vast continent are hard to pin down. The economic demands and challenges facing business-friendly Singapore, for example, bear no resemblance to those facing Myanmar which has only recently opened its borders to international trade. Likewise, India and China – behemoths both – are driving and managing economic development in manifestly different ways, not least due to their very different political systems.

But almost everywhere in Asia there is economic dynamism and rapid change on many fronts. A burgeoning Asian middle class of more than 500 million people – forecast to rise to 1.75 billion by 2020 – has a new set of consumerist and, often, political demands. Free trade is also being rapidly embraced by many countries, either on a bilateral or multi-lateral basis, not least through the ASEAN Economic Community that is due to come into being next year. On the flip side, many of Asia’s fastest growing countries are struggling with transport and logistics infrastructure shortfalls which drag down growth rates.

According to some of Asia’s leading shipping and logistics executives, all of this has huge implications for global trade, the logistics solutions that enable it and the supply/demand and rate expectations of transport providers and their customers.

Steven JK Lee, Chairman of the Singapore Aircargo Agents Association, said the increase in Asia’s population and rapid economic evolution in recent years had turned previous trade growth forecasts upside down. “The population transformation is the driver of this progress,” he said. “Technology is the key supporting tool as the world is now closer. And e-commerce is becoming a normal platform.”

“With e-commerce the balance of major trades will become more balanced. It will be eventually a win/win situation for both East and West,” added Lee.

According to Gerhard Blumensaat, Director for air freight for North/Central China at Schenker China, the rise of China’s middle class, its growing demand for luxury items and its shift up the manufacturing value chain will see air freight volumes to and from the country balance out in, “3-4 years’ time.”

Charles Kauffman, Head of Operations and Value Added Services at DHL Global Forwarding Asia Pacific, takes a similar view on the ocean and air Asia-Europe and Trans-Pacific trades. “For sure we will see more balanced trade between Europe and US to Asia in future, and that future is not far away,” he said.

“Asia has a rapidly growing consumer market with its fast growing middle class which leads to heightened demand for a full spectrum of consumer and luxury goods. From a forwarding perspective, balanced trade flows is an advantage as it effectively utilizes capacity, leading to better prices. Carriers will be more willing to increase capacity and flights if trade flows are more balanced.”

Lars Mikael Jensen, Chief Executive Officer, Maersk Line, Asia Pacific region, notes that rising incomes in China are not just driving up production costs for manufacturing in the traditional factory regions, they are also boosting import demand across Asia as the wealth spreads. “In recent years we have seen increased sourcing and production shifting from China to South East Asia,” he said. “While countries in South East Asia are manufacturing more, imports are also rising due to a growing middle class and a large, young population who are consuming more in a number of countries such as Indonesia and Vietnam.”

According to Jensen, China’s transition from an export-driven economy to being more consumption-driven is – and will – have a significant impact on the trade composition of Asian imports, impacting substantially on the Europe-Asia and Trans-Pacific trades. “For example we have seen a growth of exports of consumer goods, auto parts and high value products into China, replacing the usual exports of wastepaper and scrap metals,” he explained. 

“At the same time, we expect growth in the North-South trades as significant economic growth in Africa, Latin America, South – and South East Asia will stimulate trade,” concluded Jensen.

Asia’s demand for consumer products and the complexity of modern day supply chains will also continue to drive intra-Asia business. “Businesses flock to where the demand is,” explained Rahul Kapoor, Director of Drewry Equity Research at the analyst firm’s Singapore office. “With more than two thirds of the world’s population in Asia, and a burgeoning middle class moving towards consumerism, growth rates on Intra-Asia trades will continue to outpace the East-West trade.”

This view was also supported by Maersk’s Jensen who said East-West trades remained challenging due to excess capacity and low profitability. By contrast, Intra-Asia trade was now the largest market globally in terms of actual container volumes and the trade was seeing good growth of around 6%. “Near sourcing within regions is expected to increase in the next few years, which would likely indicate stronger growth for regional trades such as intra-Asia compared to the long-haul trades,” he added.

Much the same is predicted in the air freight business. Stewart Sinclair, Managing Director of Suvarnabhumi Airport ground handler Bangkok Flight Services, part of the Worldwide Flight Services group, said there was already ample evidence of Intra-Asian trade flows increasing, often driven by production being undertaken within Asia and assembled within Asia for the Asian market. “You could have screens from China and hard drives from Thailand being assembled in Taiwan, for example,” he explained. “Whether production in Europe will become productive enough to reverse trade lanes I’m not sure. This would involve labour practices, automation, management practices, real estate costs and would depend on the Euro becoming significantly weaker.”

Charles Kauffman believes plugging into the intra-Asia trades will be critical to the success of many logistics companies and forwarders as growth rates outstrip East-West flows over the next decade. “This is undoubtedly the future,” he explained. “The opening of new markets in Asia, the rise and rapid growth of the middle class, and the easier movement of goods with Free Trade Agreements and developments within regional trade associations – these are key drivers of greater trade and prosperity in the region that will be reflected in the physical flow and movement of goods.”

Transport Intelligence’s Chief Executive, John Manners-Bell reflected, “There is little doubt in my mind that the future for supply chains and logistics in Asia will be predominantly intra-regional. But what will this mean for freight forwarders and shipping lines? Undoubtedly we will see the margins of the global forwarders eroded as transits become shorter and cheaper throughout the Asian region in contrast to inter-continental. And these changing patterns also raise major questions concerning the development plans of the global shipping lines. They are continuing to invest in ever larger ships which can only be used on the major trade routes, and predominantly on those between China and Europe. Given their lack of operational flexibility as well as the lack of facilities which exist for ultra-large vessels outside of China and Singapore, it may be time for these companies to re-address their strategies.’

To hear more on what the ‘New Asia’ means for logistics and transport demand join Transport Intelligence on October 15-16 in Singapore at our Emerging Markets Logistics Conference.

To participate in the global debate visit Twitter at #TiSingapore14 and be sure to follow us @TransportIntell for the latest news and updates.

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