Asia Looks Within

If the momentum China has shown coming out of the financial crisis signals a new Asia-centric economic order, the emergence of the intra-Asia container market is one important marker of that development in the shipping industry. Still quaintly and inaccurately referred to as a “trade” — as if it were somehow a single route like the California-Boston cowhide trade described in Richard Henry Dana’s 1840 classic, “Two Years before the Mast” — the intra-Asia market is emerging from the shadows with real information coming out for the first time thanks to industry analysts such as AXS-Alphaliner, carriers and others.

The picture that emerges depicts a fast-growing, complex and staggeringly large market. A network of dozens of routes, the intra-Asia trade is becoming a magnet for carriers and a reflection of an increasingly interconnected and rapidly expanding regional Asian economy. Its participants run the gamut from global carriers with intra-Asian feeder operations to single-ship operators enticed by the availability of ships and low barriers to entry.

With the U.S. and Europe mired in the post-recession blues, Asia is surging, and taking the container market along with it. “There is no question that the intra-Asia trade will be the focal point of the future of container shipping,” Bronson Hsieh, chairman of Evergreen Marine, told The Journal of Commerce’s TPM Asia conference last month.

His point is that the intra-Asia market is a reflection of expanding and more formalized trade relationships within Asia, particularly between China and the 10 members of the Association of Southeast Asian Nations. He sees a former competitive scenario between China and ASEAN nations evolving to one of greater interdependency based in part on China’s growing consumer market, and formalized in a China-ASEAN Free Trade Agreement that took effect last January.

“The expansion of China’s domestic market brought new opportunities for ASEAN countries and enabled them to change their role from being China’s competitors to becoming its suppliers,” he said.

While the U.S. and Europe were embroiled in the financial crisis, Asia was riding out the storm, and the idea Asia is being decoupled economically from the West is gaining credibility. The intra-Asia market illustrates this, with two-way China-ASEAN trade growing nearly 50 percent in dollar terms from January through July over the same period in 2009.

“In contrast to the severe decline in most trade lanes, the intra-Asia market was able to maintain a high degree of stability throughout the global financial storm,” Hsieh said. “In 2009 (intra-Asia) cargo volumes decreased by only 2.6 percent. During the first half of this year, cargo volumes increased by 16.9 percent. The performances of both periods outstrip the long-haul markets from Asia to the U.S. and Europe.”

The question of how much the intra-Asia market is tied to non-Asia markets, particularly Europe and North America, is still relevant. Although pure intra-Asia volumes are growing, much of the volume is still transshipped to traditional east-west linehaul services.

“Intra-Asia is often considered the largest market for containers in the world, but recall about half is destined for re-export,” Hong Kong shipping analyst Charles deTrenck wrote in his Transport Trackers write-up of TPM Asia.

Including feeder transshipments, the total intra-Asia market may be as high as 37 million TEUs, compared with 13 million to 14 million in the Asia-Europe and trans-Pacific trades. Some 100 carriers operate in the market, many of them small, including some single-ship operators. The more established carriers that participate in the Intra-Asia Discussion Agreement account for only 60 percent of total intra-Asia capacity. Many of the new arrivals are Chinese operators acquiring smaller ships with Chinese bank financing.

“Carriers are turning to the intra-Asia market as the container shipping industry’s new focal point, as the trade’s growth is expected to outpace that of the Asia-Europe and trans-Pacific markets,” AXS-Alphaliner reported in early November.

An estimated 85 percent of capacity is deployed in dedicated intra-Asia services, as opposed to intra-port slots on global carriers’ long-haul routes, Alphaliner reports, illustrating the regional nature of the market. The ship sizes are getting larger. Cosco and China Shipping are operating 4,100- to 5,000-TEU ships in the China coastal trade and will handle 4.8 million TEUs in that market alone, according to Alphaliner. The pre-recession containership ordering spree concentrated on ships of the largest capacity, which, upon deployment, replaced smaller ships, Hsieh said.

“As large-sized newbuildings phase into long-haul services, vessels of middle and smaller sizes will cascade to secondary trade routes. The ripple effect will extend to the intra-Asia market,” he said. “Previously vessel sizes utilized in the intra-Asia services were limited to about 3,000 TEUs due primarily to the capacity of ports and terminals in Southeast Asia” but now Panamax-sized ships of 4,000 to 5,000 TEUs are being deployed to the largest intra-Asia routes.

The most important aspect about the intra-Asia container market isn’t necessarily the logistics opportunities it offers, but what it says about the makeup of the post-recession global economy. A new picture is emerging.

Peter Tirschwell is senior vice president of strategy at UBM Global Trade. Contact him at ptirschwell@joc.com and follow him on Twitter at www.twitter.com/PeterTirschwell.
 

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