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Eye of the tiger

Carriers and forwarders are reporting strong intra-Asia growth as manufacturing shifts out of China and e-commerce booms. But, warns Ian Putzger, some of the volumes are looking to land transport instead

The world’s factory floor, as the Pearl River Delta (PRD) has been frequently called, is getting less crowded. A recent survey of the Chinese Manufacturers Association of Hong Kong revealed that as many as 32% of the 274 members polled were planning to curb their investment in the region, citing a double-digit rise in labour costs as the primary reason.


More and more companies that previously manufactured in the PRD are shifting production to other countries in Asia. “A lot of our clients have left,” says a Hong Kong-based packaging manufacturer, who is himself thinking of moving to Vietnam.


With thin margins and relatively low set-up costs, garment and textile producers have been in the vanguard of the Asian migration. Some have shifted to Vietnam, but there is strong competition from Cambodia, Bangladesh and, lately, Myanmar. India and Sri Lanka are also attracting garment production, notes James Woodrow, director of cargo at Cathay Pacific.


Asian freighter operators have been in hot pursuit. Cathay has been planning to mount twice weekly all-cargo flights to Phnom Penh, due to commence in August, according to Woodrow. Dhaka saw the arrival of freighters from Korean Air last year.


Myanmar, the new kid on the block, is predominantly covered by ocean cargo, notes Henry Dinh Huu Thanh, president of Vietnamese forwarder Bee Logistics. At this point, lift out of this market consists of passenger bellies, which seem sufficient to take care of the demand so far.


Some of the exodus from the PRD has been linked to nearshoring, as North American and European companies seek production closer to their markets. This applies to a range of products, from clothing apparel to auto parts and consumer electronics. The higher-end electronics associated with computers and smartphones, however, look set to remain in Asia, says Brian Clancy, managing director of Logistics Capital and Strategy. When it comes to integrated circuits, semiconductors and disk drives, the triangle between Japan, Taiwan and Korea still rules the roost – though assembly is largely performed in China. But, he adds, final assembly may increasingly take place in low-cost countries nearer the consumer markets, such as Guatemala for North America.


Vietnam has drawn in a lot of electronics production, notes Charles Kaufmann, head of operations and value-added services at DHL Global Forwarding, Asia Pacific. This has brought lively attention from hungry freighter operators like Cargolux, as well as a rising number of international belly providers, such as Emirates. The latest all-cargo entrant is Etihad, which mounted twice weekly flights between Hanoi and Abu Dhabi in July with Airbus A330-200F equipment.


Some sources project 25 to 30% growth for the Vietnamese air freight market over the next 12 months. Much of this is tied into longhaul trade, but regional traffic is also up, in part because Vietnam’s gateways have been serving some points in neighbouring countries, such as Cambodia and Laos. Bee Logistics is planning to add a branch at the border with Cambodia to facilitate flows, Dinh says.


Kuehne + Nagel also regards Vietnam as a regional conduit for logistics flows. “We consider the country an important link in the chain of providing seamless integrated transportation services to our global and regional clientele,” comments Thomas Lehmann, senior vice president for air freight, South Asia Pacific.


In terms of overall trade, Vietnam’s exports to North America and Europe not only dominate the country’s exports overall, but they also climbed faster than shipments to most neighbouring countries in the first half of 2014. Exports to the ASEAN region, which constitutes Vietnam’s third largest market, showed a 4.8% rise. However, exports to China climbed 20.8%, faster even than those to Europe and North America, which both had double-digit increases.


The integration of ASEAN, which is scheduled for 2015, should give a boost to regional trade, but there are doubts that much impetus will arrive next year. According to the Office of Regional Economic Integration at the Asian Development Bank, most of the import duties in the union have already fallen to zero since 2010, while the remaining categories (such as wine, sugar, swine and rice) have not seen the progress to suggest that any solutions will be ready in time. >>

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