Faster US-Southeast Asia transits poised to fuel further growth

Faster US-Southeast Asia transits poised to fuel further growth

Container terminals such as the Cai Mep International Terminal in Vietnam have helped Southeast Asia handle growing trade, but infrastructure investment is needed farther from ports.

Promised faster transits from Southeast Asia ports to the United States —  a product of alliances and Zim Integrated Shipping Services optimizing their new networks — are helping drive a virtuous circle by making the routings more attractive to the time-sensitive apparel and footwear shippers increasingly sourcing from the region.

Nine port pairs on services between Southeast Asia and the West Coast are experiencing faster transit times than before the new and enhanced alliances launched April 1, with some services being two to four days shorter than before, according to an analysis by SeaIntel. Five port pairs on Southeast Asian services to the East Coast are experiencing shorter transit times of one to two days.

Although containerized imports from Northeast Asia, including China, remains the largest market by far in the United States, imports from Southeast Asia have grown much faster over the past five years. Containerized imports from Southeast Asia have increased 33.2 percent since 2012, compared with a 13.5 percent increase from Northeast Asia, according to PIERS, a JOC.com sister product.

 

Apparel, footwear, and furniture are three of the higher-volume imports from Southeast Asia. Furniture and houseware imports last year totaled 509,782 TEU, an increase of 7.52 percent from 2015 and a 20 percent increase since 2012. Apparel imports totaled 264,242 TEU, a decrease of 1.97 percent from 2015 and a 3 percent increase from 2012. Footwear imports from Southeast Asia totaled 117,813 TEU, a 6 percent increase from 2015 and almost twice the volume in 2012.

Nate Herman, senior vice president of supply chain at the American Apparel & Footwear Association, sees a natural synergy between the growth in imports from Southeast Asia and improved transit times from the region. “There’s a lot of interest in the region, but to work for the industry you need good service,” he said.

As a result of carrier efforts to optimize their networks under the new alliance arrangements, certain hot lanes are emerging in the US import trade from Southeast Asia, and enhanced service by the alliance that include direct services and shorter transit times between key port pairs should attract even more cargo volume to those lanes.

Carriers are shortening transit times between dozens of port pairs on US services from Southeast Asia under the new vessel-sharing alliances they launched on April 1. This is important for two reasons. Shorter transit times due to more direct services inevitably act as a stimulus for more cargo growth. Also, there is a geographical synergy between Northeast and Southeast Asia. As labor costs increase in China, exports are reduced to incremental annual growth, and manufacturers look to Southeast Asia to expand.

As a result of this shift, the annual growth in US imports from Northeast Asia has been stuck in the 2 to 3 percent range the past five years, while imports from Southeast Asia have been increasing 6 to 10 percent a year, according to PIERS.

Northeast and Southeast Asia together dominate US imports. The combined region accounts for 67.5 percent of total containerized imports. Northeast Asia is the largest individual source of US imports, accounting for 56.3 percent, and Southeast Asia is the second largest sourcing region at 11.2 percent of total US containerized imports, according to PIERS.

The SeaIntel report limited its discussion to the three new vessel-sharing alliances, but independent carrier Zim also has had a growing presence in Southeast Asia the past 10 years.

 

“Zim was the first main liner to call Cai Mep direct in 2007,” said Nissim Yochai, vice president of trans-Pacific trade. “We were also one of the first shipping lines to have a direct Cai Mep call to the US East Coast” in 2015, he said.

Global shipping lines on April 1 dismantled their four vessel-sharing alliances and launched three larger alliances with new service strings. The net result of concentrating fewer but bigger ships into each of the trade lanes was a mixed bag for beneficial cargo owners (BCO). Some importers will experience dwindling service diversity, a reduction in port pairs and a drop in the frequency of the remaining services between port pairs in Asia and the United States, according to the March 12 issue of SeaIntel’s Sunday Spotlight.

“While this is likely to be a challenge for some shippers, it should hardly come as a surprise, as one of the major drivers behind the larger alliances is the ability to optimize networks, which should be expected to lead to less redundancy across the carriers and thus also to fewer port pairs,” SeaIntel stated. Carriers in aggregate have experienced financial losses for six straight years, so a key goal of the new alliances was to eliminate service redundancies and reduce operating costs, even if that negatively impacts some BCOs on some lanes.

Therefore, in the Southeast Asia-US trade lanes, the new alliances went from eight weekly services to six in the all-water services to the East Coast, and from nine weekly services to eight in the Southeast Asia-West Coast lane, said Alan Murphy, CEO and partner at SeaIntel. The East Coast route went from 29 port pairs under the old alliance structure to 28 under the new arrangement, while port pairs on services to the West Coast went from 26 to 23 direct, distinct port pairs, he said.

Changes in vessel deployments appear to reflect a shift of some all-water services to the East Coast from the Suez routing to the Panama routing, said Jim Newsome, president and CEO of the South Carolina Ports Authority. This follows from the widening of the Panama Canal last summer to allow passage for vessels with capacities up to 14,000 TEU. “The growth to the East Coast has been mostly through Panama,” he said. What has changed, he said, is that the capacity of the vessels has gotten much larger compared with the previous canal limitation of 5,000-TEU ships.

The shuffling of port pairs that resulted from the alliance restructuring has favored some US ports in picking up new direct services, although some ports lost direct services. Direct services between ports in Asia and those in the United States are preferred because transit times are faster compared with having to transship containers from one port to another in Asia before the vessel heads to the United States.

 

As could be expected, this resulted in winners and losers on the various trade lanes. Seven port pairs disappeared on the Southeast Asia-West Coast trade lane and four new port pairs were established. There was a similar loss and addition of port pairs on the Southeast Asia to East Coast trade lane. The Gulf Coast ports experienced only a modest change, with the transit time from Singapore to Mobile one day shorter, SeaIntel reported.

As the fastest-growing US trading partner in the region, Vietnam gained services and improved transit times under the new alliances. Six port pairs on the Pacific Southwest route to Los Angeles-Long Beach and Oakland saw a shortening of transit times ranging from two to four days, with the Vung Tau to Long Beach and Oakland route experiencing a doubling of weekly service frequency and reduction in transit times of four days. On the East Coast services, Vung Tau was also the big winner, accounting for three of the four additional weekly services.

Carrier deployments, therefore, reflect the growing trade volumes between Vietnam and the United States, a development that has been under way for the past 10 years in footwear and apparel. Herman noted that at its peak China accounted for 85 percent of US footwear imports and about 40 percent of apparel imports. Last year about 63 percent of US footwear imports and about 36 percent of apparel imports came from China.

Footwear was one of the earliest products to migrate to Vietnam, although it took awhile for manufacturers to build a presence. Footwear production is somewhat complex. It requires development of a critical mass of vendors for each type of footwear. “Apparel is easier to move,” Herman said. Therefore, apparel manufacturing spread throughout Southeast Asia and the Indian subcontinent.

As manufacturing increases in a region, carriers attempt to match key export ports in Asia with key import ports in the United States in order to reduce transit times. “Shorter times on the water help a lot,” Herman said.

The restructured carrier alliances is helping Oakland to increase its penetration of Southeast Asia, said Chris Lytle, executive director. Direct weekly calls from Southeast Asia to Oakland increased from 10 to 15 per week, including Oakland’s first direct vessel service from Jakarta, Indonesia, an increase from two to four weekly services linking Oakland with Laem Chabang, Thailand, and an added weekly call from Singapore. Oakland handles more exports than imports, and direct services are welcome given the shorter transit times needed for the many food products and wine exports from the Central Valley and Northern California, Lytle said.

Likewise, growing import markets in the United States attract more direct services from carriers. Houston is experiencing this phenomenon right now. The Gulf Coast, with its growing population and recent surge in exports of petrochemical products such as resins, now has three all-water services from Asia through the Panama Canal compared with only one a year ago. John Moseley, senior director of trade development at Port Houston, expects that number to increase. “Carriers will add new services. It will happen,” he said. Houston has identified a market for 1.1 million TEU a year within a one-day drive, he said.

 

Furniture imports are growing rapidly due to home construction in the Houston area. “Furniture is huge,” Moseley said, adding that the bulky product lends itself well to direct ocean service as opposed to intermodal rail service from the West Coast. US containerized imports of furniture and houseware products from Southeast Asia have grown rapidly, from 409,438 TEU in 2012 to 509,782 TEU in 2016, according to PIERS.

Footwear imports from Southeast Asia have almost doubled over the past five years, from 59,480 TEU in 2012 to 117,813 TEU in 2016. With its head start in attracting a variety of vendors, and its recent developments in transportation infrastructure, Vietnam is the leader in the region. Vietnam in 2016 exported about 400 million pairs of shoes to the United States, according to a Footwear Distributors and Retailers of America (FDRA) webinar last month. China, however, remains by far the largest exporter of footwear to the United States, at 2.4 billion pairs of shoes, the FDRA webinar was told. From Southeast Asia as a whole, US imports of footwear increased 5.95 percent in 2016 year over year, according to PIERS.

Herman said Vietnam has made significant strides in its port and infrastructure development, but despite the fact that it is doing better on that score than most countries in Southeast Asia, “it’s not where we would like it to be.”

If Southeast Asia is going to continue to chip away at China’s lead in many products, countries in the region must not only further develop their port facilities but also the roadway access to the ports. Yochai noted that Vietnam, with its improved infrastructure and expansion into higher-value products such as electronics, has more direct services to North America than other country in the region. While Thailand, Indonesia, and Malaysia have significant growth opportunities in labor-intensive industries, infrastructure development has to catch up to manufacturing capability, he said.

Generally for the combined Northeast and Southeast trans-Pacific services, the result of the restructured alliances is one of lower service diversity offset somewhat by improved transit times between some port pairs, SeaIntel stated. The Asia-West Coast routes experienced a total of 111 days saved in transit times, for an average of 2.2 days of shorter transit times for 51 Asia-US port pairs. The Asia-East Coast service changes saw transit times improving for 62 port pairs for an average improvement of 1.36 days per service.

Contact Bill Mongelluzzo at bill.mongelluzzo@ihsmarkit.com and follow him on Twitter: @billmongelluzzo.