Asia's Growth Comes From Within

Jan.14--That Wan Hai Lines attributed its third quarter profit turnaround to its decision to shift resources from the destitute Asia-Europe market to growing intra-Asia trades is testament to the strong fundamentals underpinning Asia’s regional trade.

Asia’s regional container business, which includes more than 3,500 port pairs, has always been complex. For many moves, the distinction between feeder links to east-west services and genuine intra-Asian container trade is difficult to discern.

Global intra-regional container trade volumes were on pace to surpass 34 million 20-foot-equivalent units in 2012, according to London-based research analyst Container Trade Statistics. Pure intra-Asia shipments, rather than feeder movements, account for at least half of that total, according to Tim Wickmann, CEO of MCC Transport, A.P. Moller-Maersk’s Singapore-based intra-Asia operator. He estimates growth in the trade in the first six months of 2012 was approximately 8 percent. With a strong 2012 fourth quarter under way, volume was set to reach 18 million TEUs for the year.

The reasons for the rapid growth in intra-Asia trade are many and varied. Increasing urbanization and the rise of a new middle class are driving consumption of Asian-made products. Three-fourths of containers carrying goods for consumption in Asia originated in Asia in 2010-11, and the share of suppliers originating shipments outside Asia is falling gradually, according to figures from research and consulting firm Seabury. Asian suppliers also provided 74 percent of the continent’s construction, manufacturing and goods, and 57 percent of its raw materials during the two-year period.

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Trade liberalization also plays a part, with the tangled web of bilateral free trade agreements in place or under negotiation buttressed by more wide-ranging deals such as the pact between the Association of Southeast Asian Nations and China, under which trade is flourishing. Further liberalization measures, including the creation of the ASEAN Economic Community in 2015 and the opening of Myanmar as a market and supplier of labor and raw materials should boost regional trade.

Rising merger and acquisition activity, partnerships between Asian companies and efforts by Chinese shipping and logistics businesses to establish pan-Asian footprints also encourage more regional movements, said Wolfgang Lehmacher, managing director for Greater China and India at consulting firm CVA.

“China is expanding its trade network to reduce its dependency on major trade partners,” he said. “OEMs are also diversifying supply and production following disruptions to global supply chains in 2011 after the Japan earthquake and tsunami and flooding in Thailand, and this will increase logistics movements.”

The complex nature of modern supply chains, which require multiple movements of parts before assembly, further bolsters regional trade.

Supply chain managers also increasingly are examining near-sourcing options in Asia. A new survey by BDP International, its Centrx consulting unit and Temple University’s Fox School of Business found that companies were moving production closer to demand in regions such as Asia and the Middle East as they look to cut costs and transit times. Asked which regions show the greatest potential for interregional trade flows, 56 percent of the survey’s respondents cited the Asia-Pacific.

“The bias toward Asia is further evidence of the growing economic importance of the region,” said Arnie Bornstein, BDP’s executive director of marketing and corporate communications. As traditional consumer markets in the West shift from growth markets to low- or no-growth markets, he said companies would further migrate sourcing and manufacturing closer to the markets where their products are sold and consumed. “The outlook is bullish for intra-Asia trade,” he said.

Analysts at HSBC agree, concluding that Asia will lead any global economic recovery and this will further drive intra-Asia trade. After a relatively sluggish 2012, merchandise exports from Asia will be “robust” over 2013-20 led by India, Vietnam and China posting double-digit annual increases, HSBC said.

“Our forecasts show the pace of growth in the region picking up again in 2013 and subsequent years, which will give renewed impetus to trade flows, both within the region and globally,” HSBC said in its latest Global Connections Report.


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