Global economic uncertainty is hurting Asian economic growth but the long-term outlook for logistics providers is still bright, according to Brendan Canavan, the recently appointed president of UPS Asia Pacific.
He said that although current weakness in U.S. and European markets was hitting UPS’ “bread and butter” export customers in Asia, many customers were seeking out new markets and creating fresh logistics demand.
“Intra-Asia trade is currently experiencing strong near-term growth prospects and we are seeing Asian exporters, particularly in the high-tech industry, building stronger business relationships with their neighbours and intensifying trade within Asia to capture this growth,” he said.
Intra-Asia growth will continue to surge, driven by the willingness of governments to embrace free trade agreements and the development of new low-cost emerging markets such as Bangladesh, Indonesia and Vietnam.
“The intra-Asia shipping market is promising, driven by increasing consumption, manufacturing, and a relatively better macroeconomic scenario,” he said. “The intra-Asia containerized trade segment has seen average growth rates of approximately 6.4 percent between 2009 to date, in comparison to a sub 5 percent growth rate for other trade corridors.”
“In terms of actual cargo volume, the share of the intra-Asia region has increased from 19 percent to 21 percent within 2008 to 2012,” he said. “This would indicate a strong demand that may eventually necessitate greater capacity.”
China remains critical to the company’s performance in Asia. Canavan said that although China’s trade growth numbers had fallen this year and manufacturing had slowed, there was no comparison to 2009, when imports shrank by almost 30 percent.
“The market is handling the current economic conditions better than in 2009,” he said. “Export orders have declined which is a sign of weakening global demand with several European nations in recession and the U.S. economy slowing.”
“The slower growth figure also suggests the cyclical growth in China is normalizing and that market is undergoing a significant shift from its low-cost-manufacturing roots to a maturing market driven by a self-trading and intra-Asian economy,” he said. “But while China’s GDP growth slowed in the last quarter at over 7%, it is still significantly higher than the estimated approximate global GDP growth of 3%.”
Canavan expects lower demand to further pressurize ocean freight rates on Asia-Europe lanes. “With market indicators pointing toward flat volume growth, I think carriers will be under a lot of pressure to reduce rates,” he said.
In the long-term there remain “vast opportunities” for the logistics industry in China, not least because of strong government support for infrastructure construction, a growing middle class, rising domestic consumption and “the gradual move of China’s businesses up the value chain,” which will necessitate more sophisticated and integrated logistics solutions.
“We’re seeing a growing shift in consumption in China with a growing urban population that includes an increasingly affluent middle class,” he said “Retail sales and e-commerce spending are still expected to grow, reaching RMB 2 trillion by 2015.
“While trading patterns may evolve, UPS still remains in a good position to help support these consumers as they trade globally or within the region,” Canavan said.
Contact Mike King at email@example.com.