At least one logistics manager at a major consumer goods supplier has little concern about the weak export demand from Asia’s mature countries and the continent’s resilience to the economic turmoil swirling around its major trading partners. “Asia seems to be growing irrespective of the EU and U.S.,” he said. “It’s a huge, expanding market for us.”
Narrow as that perspective might seem, the wider macroeconomic narrative supports it. Most economists expect the U.S. economy to grow about 2 percent this year and next, while the eurozone is forecast to contract in 2012 and achieve minimal, inconsistent growth in 2013.
By contrast, China is expected to grow 8 percent this year and 8.5 percent in 2013, according to the International Monetary Fund. India is forecast to grow 6.1 percent this year and 6.5 percent in 2013, while the ASEAN 5 — Indonesia, Malaysia, Philippines, Thailand and Vietnam — are collectively expected to see output increase 5.4 percent in 2012 and 6.1 percent next year.
A number of factors are combining to keep Asian economies afloat and boosting trade amid the global turmoil, many of them related to regional policy, changing consumer trends and a growing middle class.
John Lu, chairman of the Asian Shippers’ Council, believes demand for luxury products will continue to rise as tastes and society in Asia change, driving intra-Asia trade and import demand and reducing the continent’s reliance on exports to the West. “It’s straightforward,” he said. “People have money to spend, and they like to spend it on products such as wine or other luxury goods as a way of showing off, for status. It’s a lifestyle statement, to show you’re different and know how to appreciate foreign culture. It’s happened already in Singapore and Taiwan, and now it’s happening in other parts of Asia, particularly China.
“Gradually,” Lu said, “Asian economies will wean themselves off exports.”
The consumer goods logistics executive sees that societal transformation playing out, as well. Some countries are doubling purchases of his company’s products each year, “at very attractive profit margins.”
Rising foreign direct investment and a raft of free trade agreements also are driving shifting trade patterns. This trend will gather pace if the ASEAN Economic Community is created on schedule in 2015 when nontariff trade barriers are due to be abolished.
“We don’t have any import problems anywhere in Asia and, since we started manufacturing in Southeast Asia, it is even easier,” the logistics executive said. “More and more countries are complying with FTAs. Some people say the ASEAN free tariff area won’t happen, but China-ASEAN has, and I think they will harmonize, like the EU.”
IMF trade volume forecasts support the view that there remains much in Asia to be positive about even if the region’s major trading partners continue to suffer. While advanced economies will see imports rise 1.9 percent this year and 4.2 percent in 2013, the equivalent IMF figures for emerging and developing economies, led by fast-growing countries in Asia, are 7.8 percent and 7 percent, respectively. The same is true for exports, with emerging and developing economies forecast to easily outperform advanced economies.
“In the summer, intra-Asia freight rates slightly decreased on average, but remained at decent levels, due to strong underlying fundamentals, including a relatively better economic scenario than the rest of the world,” said Philippe Hoehlinger, a Paris-based analyst and consultant.
There is far too much pessimism about Asian economies and their forward role in economic growth and trade this year and in the coming years, according to Thomas Knudsen, Asia-Pacific CEO of Maersk Line. Although the slowdown in European demand has hurt some economies, he said Maersk’s volumes this year are growing in Vietnam and Indonesia.
And, while China’s export slowdown concerns the shipping industry, the Chinese economy has not ceased functioning, and government stimuli could boost activity later in the year. “We’re still talking about over 7 percent GDP growth in the second quarter, which many companies and countries would be more than happy with,” Knudsen said. “Demand is still there.”
Although China is no longer the cheapest place to produce goods, “it still has the processes, ports and infrastructure. Chinese flows and the economy are changing. There has been a big shift of manufacturing inland. Imports have also grown quite a lot this year because of more domestic demand. Next year we even think eastbound (imports from Europe) will outgrow westbound.”
Peter Orange, regional manager of Asia-Pacific and Indian subcontinent freight sales for Singapore-based GAC Logistics, said that while some Asian economies have seen economic growth slow, Sri Lanka, Bangladesh, India, Indonesia, Vietnam and Thailand have performed well.
“There has been significant development in these countries that is luring increasing amounts of direct foreign investment, and this will, over time, create more opportunities for the shipping and logistics industries,” he said. “Domestic demand is also very strong in many key Asian economies, particularly in China, where we are seeing an increase in our automotive business.
“Increasingly, trade among Asian countries is diversifying and expanding to cater to heightened consumer demand in the region. We feel that the outlook for intra-Asia logistics demand is still positive.”
Essa Al-Saleh, president and CEO of Agility Logistics’ Global Integrated Logistics business group, shares the optimism. Asia, he said, will be the company’s most important and fastest-growing market in the years ahead.
“There are lots of opportunities,” Al-Saleh said. “Asia has all these natural resources, rising consumption and affluence, and emerging low-cost production centers. There are more and more economic communities coming together.
“Asia still has huge trade potential, and many logistics companies are positioning themselves for this. It’s not a satellite of Europe or the U.S. It’s now where we invest most, and it’s where we have most of our people and resources.”
Knudsen predicts that although China’s export growth may slow in the future, it will remain vital to trade growth within Asia, supplying parts and components to assembly and manufacturing plants increasingly expected to be located near fast-growing domestic markets such as Indonesia and Thailand. “Intra-Asia trade will continue to grow with more free trade agreements and the opening up of infrastructure,” he said.
He identified Myanmar, which is in the early stages of opening its large domestic market to trade, as a big potential market in the long term. “They have a lot of work to do so that factories can work with global players,” Knudsen said. “They don’t have ports or the infrastructure or processes yet, but we’ll see high-end double-digit growth there because they’re starting from such a low base.”
The logistics executive believes that not only will Asian markets assume ever greater importance for imports, but as supply chains diversify and become more complex, enhanced demand from Asia increasingly will anchor the bottom lines’ of many logistics and shipping companies.
“We are nowhere near tapping the potential of the Asia-Pacific. From my own view as a logistician, there is much more room for growth,” he said. “Maybe we are coming up against limits to Chinese growth, but Asia is about a lot more than China. There is a lot more growth to come.”
Contact Mike King at email@example.com.