Changes in the US-China trade relationship and the rapid approach of the deadline for IMO-imposed limits on sulfur emissions are the dominant forces shaping the ocean freight market in Asia as we move through the latter stages of 2019.

 

Despite ongoing talks, the trade relationship between the world’s two largest economies has been volatile and significant risk remains of a full -blown trade war.  Even if a deal can be reached and enforced to the satisfaction of both governments, the residual impact of the implementation of costly trade tariffs that started in 2017 will be lasting.  

 

The tariffs resulted in US and Chinese companies looking to new sources for imports, and an acceleration in diversification of production from China to other emerging markets. Although rising labor costs in China have driven multinationals to look to alternative sourcing markets for more than a decade, the additional tariffs and policies to rebalance the economy from its heavy reliance on exports have accelerated the trend.

 

Supported by new technologies, supply chains are more agile than ever, and the physical infrastructure, labor, and relevant data required to set up production in new locations is more readily available. Better risk management through diversified sourcing is also an increasingly important competitive objective for BCOs, particularly in sectors such as garments and automotive that rely on high-velocity supply. Malaysia, Japan, Pakistan, and Thailand are benefiting from import substitution for products such as electronic integrated circuits, high-end automotive technologies, cotton yarn, and communications equipment, while more garment and footwear production is moving from China to Vietnam, Cambodia, Bangladesh, and Sri Lanka.

 

Changes in consumer habits also are driving change in the structure of regional and global supply chains. With a plethora of new technologies available to connect BCOs with consumers, traditional methods of selection and purchase of goods are being replaced by e-commerce, which is the leading growth opportunity for many companies. The result is that for many BCOs, improving competitiveness is linked to re-engineering production and distribution networks and ocean freight service providers are being looked at to support increasingly fragmented production and distribution in international supply chains.

 

State investment in various forms means container port infrastructure in alternative markets to China, particularly South and Southeast Asia, is improving, gradually. But the demands of the market appear to be changing more quickly than container lines can respond. In fact, BCOs’ supply chains are changing in ways that don’t seem well aligned with some of the fundamental strategies the large liner shipping companies are implementing.

 

The container ship order book is in better shape than it’s been for some time but the supply and demand imbalance that underpins poor carrier profitability in times of weaker demand is far from resolved. The Jan. 1, 2020, deadline for implementation of the incoming IMO low-sulfur regulation brings with it a serious new dimension to the challenge. Traditional means to improve profitability — cutting capacity and building economies of scale with bigger vessels — is at odds with the more fragmented production and distribution networks in international supply chains. These networks prefer more export choices and more service frequencies rather than fewer.

 

BCOs are increasingly critical of deteriorating liner service levels resulting in part from bigger ships, call sizes at ports, and vessel-sharing alliances, and say the promise of improvements through blockchain, visibility-seeking, and other technologies are painstakingly slow to materialize.

 

Offering the highest quality event programming anywhere in Asia, TPM Asia 2019 will pick apart the complex trends shaping the regional and global ocean freight landscape. Leading BCOs, shipping lines, trade economists, and industry analysts will examine the complex challenges facing supply chains and the ocean freight industry, providing a realistic view of the state of the market and valuable insights on solutions to its challenges and where opportunities can be found.