Intra-Asia comprises some of fastest growing economies in the world. The Association of Southeast Asian Nations (ASEAN) overtook the European Union as China’s largest trading partner in 2020 and China retained its status as ASEAN’s biggest trading partner for the 12th consecutive year. According to the Asian Development Bank’s (ADB) Asian Economic Integration Report 2022, intra-Asian trade makes up 58% of the region’s total trade.
“Intra-Asia trade on a region-to-region basis is the largest trade in the world right now. In terms of global containerized ocean freight, trade volumes in intra-Asia have exceeded the two key East-West trades, surpassing both the Far East-Europe and the Asia-North America trade corridors,” says Andrew Chien, Director - LCL Development, Asia Pacific at Shipco.
Of the world’s top-five most connected economies, four were in Asia in the third quarter of 2021, according to the United Nations Conference on Trade and Development (UNCTAD). China had the highest liner shipping connectivity followed by Singapore, Republic of Korea, Malaysia, and United States (see Figure 1).
A majority of the largest ports in the world are in Asia. In 2020, the developing economies in Asia and Oceania handled 509 million TEUs of containers, about 62% of world port container traffic (see Figure 2).
“The Southeast Asian market is steadily growing which allows carriers to add to the number of direct routes to offer competitive transit times to the intra-Asian market. This creates several opportunities for us to increase our direct service portfolio and offer more options to our customers. A direct service avoids potential delays caused by port congestion at transshipment hubs,” says Ruchira Gregory, Shipco’s Regional Head of Tradelane Development.
With shorter transits between ports in Asia, the impact of delays is also disproportionately greater. Mr. Chien points out, “This means customers will mostly be looking for direct service as the only option.”
Shipping on the intra-Asian trade is easily affected by developments in other corridors. In the event of space or container shortages on deep-sea services, resources from intra-Asia are typically diverted to support the long-haul trade. “So, much of the time, volatility of freight levels, space and container availability is not just based on what is happening with intra-Asia trade, but subject to what is happening in other trades as well,” comments Mr. Chien.
Intra-Asia was worst hit by capacity cuts when liners redirected tonnage to more profitable East-West tradelanes. 11% or over 331,200 TEU slots were removed from intra-Asian services in 2021. Presently, 11% of the cellular fleet is active in intra-Asia, representing a -12.8% decline compared against the beginning of last year, says Alphaliner (see Figure 3).
“These decisions have led to capacity withdrawals and a sharp increase in freight rates for several intra-Asian routes. In addition to lack of space, equipment availability specially for Southeast Asia exports remain tight,” Ms. Gregory remarks.
Carriers say congestion at Asian ports put pressure on vessel schedules, resulting in port omissions and missed sailings. Stig Krogh, COO, Asia Pacific & ISC at Shipco says the company’s good relationship with multiple carriers help mitigate the challenges. “We are in most cases able to find alternatives for those omitted port of calls because of our good relationship with the liners. Through our self-intuitive web-based tools on shipco.com, we are able to keep customers continuously updated on changes, by notifications as well as through our online shipment tracking tool.”
Global schedule reliability has largely remained between 30-40% since January 2021. Port congestions at transshipment hubs continue to be a challenge and the Ukraine crisis might bring about increases in BAF and emergency fuel surcharges, Ms. Gregory cautions.
“The key challenge for market players is how to price effectively in this unstable market while ensuring contract rates for a fixed period. At Shipco, we are committed to maintaining reliability of service towards all our customers despite disruptions in the market,” Ms Gregory states.
Mr. Chien highlights, “Shipco is uniquely stronger in Southeast Asia or ASEAN countries. We have services between North Asia and Southeast Asia which are not offered by anyone else.”
Developing countries with lower-wage structures such as Bangladesh, Cambodia, Vietnam and Philippines have become new production hubs for cheaper, labor-intensive goods due to China’s rising labor costs, says Carl Zhao, Regional Director for North China at Shipco.
The manufacturing sectors of these countries remain tightly linked to Chinese supply chains as many of the factories still require raw materials, equipment, expertise, and technology from China. “This is driving an increase in the transportation of raw materials, assembly parts and finished products within the region,” Mr. Zhao points out.
Asia’s appetite for consumer goods is on the rise notes Herbert Lee, Shipco’s Regional Director for Hong Kong & South China. “Intra-Asia trade is expected to remain robust not only from the high level of manufacturing activity of goods for export, but there is also a strong demand by the Asian middle class for imported goods made not just in North America and Europe, but from other countries in Asia as well.”
ADB reports that Asia’s share of regional trade with China grew from 5.8% in 1990 to 26.6% in 2020 and overall, intra-regional trade has reached 64.8% (see Figure 4).
Shipco is able to support the complex supply chain of material and parts used in manufacturing and assembly of finished goods in the Asian region through its network of services. “Developing countries such as Cambodia and Philippines have niche needs so we can connect them with Shipco’s four intra-Asia hubs, located in Hong Kong, Singapore, Busan and Port Klang to develop more gateway services,” Ms. Ruchira states.
The Regional Comprehensive Economic Partnership (RCEP) which came into force on January 1, 2022, is forecast to enhance intra-regional trade by nearly 2%. This mega pact includes China, Japan, South Korea, ASEAN, Australia, and New Zealand, and will eliminate up to 90% of tariffs on goods traded among its members over the next 20 years.
The increase in cargo volumes under the RCEP agreement will bring about tremendous opportunities for intra-regional moves. “The RCEP is the largest Free Trade Agreement and covers 30% of global GDP and a third of global population. We believe the implementation of RCEP among Asian countries will be a strong growth driver for shipping in the intra-Asia lanes,” says Mr. Zhao.