Intra-Asia makes waves

Intra-Asia makes waves Trade flourishes as liner operators seek to take advantage of trade pacts, growing consumption.

By Eric Johnson

   The start of a free trade agreement between China and six Southeast Asian nations in January 2010 looks to be the proverbial pebble dropped in a pond.
   The ripple effect of that pebble is already being felt in the container shipping industry, where liner carriers are increasingly focusing their attentions on the high-growth intra-Asia trade, sometimes at the expense of more established long-haul trades.
   The underlying growth drivers of this trade ' increased consumer power in Asia's emerging markets and trade of semi-finished goods and raw materials ' has only been aided by the free trade agreement, known as the ASEAN-China Free Trade Area (ACFTA). It links China with Singapore, Malaysia, Thailand, the Philippines, Indonesia and Brunei.
   As of Jan. 1, the agreement cut tariffs on goods exported from the ASEAN bloc to China from 9.8 percent to 0.1 percent. In the other direction, tariff levels fell from 12.8 percent to 0.6 percent. From January to August of this year, two-way trade between the six ASEAN nations and China grew 47.4 percent to $185.4 billion, compared to the same period in 2009, Bronson Hsieh, chairman of Evergreen Marine Corp., said in mid-October at the TPM Asia conference in Shenzhen, organized by the Journal of Commerce.

Bronson Hsieh chairman, Evergreen Marine Corp.
'The potential of the domestic markets in Southeast Asia will lead to demand in shipping services.'

   The growth rate was even stronger in the ASEAN-to-China trade, at 54.4 percent, suggesting the growing consumption power of China will significantly drive this free trade agreement in the years ahead.
   To underscore how keen the shipping industry has been to cash in on the FTA, Hsieh said liner carriers have introduced 26 new services linking China and the ASEAN region in 2010.
   Hsieh said that for China, the lower cost of ASEAN imports helps compensate for wage increases in China and maintains the competitiveness of Chinese exports. He also said it brings down China's consumer price index and relieves inflation pressures, which will help prolong the country's economic growth.
   The intra-Asia trade has been a hotbed of competition for decades, but in recent years, the competition has ramped up as predominantly long-haul carriers sought to take advantage of growth. American Shipper has chronicled this development each of the last two years (see www.AmericanShipper.com/links).
   A look at the top 20 providers of capacity in the intra-Asia trade (Table 1) shows a mix of large regional carriers, small niche carriers and a bevy of subsidiary lines backed by some of the world's largest liner carriers. According to research by maritime news service Alphaliner, the top six lines in the intra-Asia trade (narrowly defined as between the Far East and Southeast Asia) are all among the world's biggest.
   Wan Hai, the single-biggest provider, is an exception among those top six in that it has aggressively pulled out of long-haul trades linking Asia to North America and Europe, in favor of concentrating more singly on intra-Asia trade. But the next five-biggest ' China Shipping, COSCO, Maersk Line, Evergreen and OOCL ' are all major global players.
   'Of the top 10 (global) carriers, only Hapag-Lloyd and CSAV have not yet developed any significant intra-Asia feeder capabilities of their own,' Alphaliner said in its Nov. 1 newsletter.
   Hsieh said the trade would see increased vessel sizes as ships cascade from the east/west trades upon delivery of scores more large containerships into the global fleet. He noted there are already six intra-Asia services using Panamax vessels ' two from OOCL, and one each from MOL, China Shipping, COSCO and Maersk subsidiary MCC Transport.
   'The largest ships currently active in the intra-Asia trades are in fact employed in the Chinese coastal trade, where vessels of between 4,000 and 5,100 TEUs are trading for COSCO Container Lines and China Shipping, serving the domestic market,' Alphaliner said. 'The two Chinese carriers alone are expected to record 4.8 million TEUs in domestic volumes in 2010, which would mark an annual growth of about 20 percent compared to 2009.'
   Alphaliner said large global carriers are looking at the intra-Asia sector to absorb excess capacity, citing the example of APL deploying three of its surplus 3,500-TEU ships to a new China/Indonesia loop launched in November.
   'The move is spurred by increasing volumes between China and the ASEAN countries,' Alphaliner said. 'These APL ships will be the largest container vessels to call at the Indonesian ports of Jakarta and Surabaya.'
   Getting back to domestic Chinese activity or coastal trades, these services often don't register on analyses of intra-Asia trade. It is here, of course, where the boundaries of intra-Asia trade are hard to define. Does it include domestic shipping in China? Does it include the Indian Subcontinent region? Or more expansively, the Middle East region?
   Alphaliner's analysis shows there are about 70 million TEUs of capacity annually in the trade, with 34 million estimated for intra-regional cargo, 23 million for more localized feeder trades, and 13 million for domestic or coastal trades.
   'An estimated 85 percent of the trade's capacity is currently deployed on dedicated intra-Asia services, whereas the remainder is offered through inter-port slots on main line operators' trunk routes,' Alphaliner said.
   The news service estimates intra-Asia feeder volumes have reached 23 million TEUs per year. The main feeder operators are those covering the Southeast Asia region, the world's largest feeder market, where the three-biggest independent feeder operators ' RCL, Samudera and ACL ' are facing increased competition from most of the large main line operators that also deploy their own dedicated feeder capacity.
   To underscore just how misunderstood the overall trade is, Alphaliner estimates that member lines in the Intra-Asia Discussion Agreement (the conference which ostensibly governs the trade) only provide 60 percent of the total intra-Asia capacity deployed.
   'A significant share of intra-Asia capacity is handled through (main-line operator) slots on trunk routes, which fluctuate depending on slot availability and season,' Alphaliner said. 'The share of inter-port trunk route slots decreased over the last few years, as more dedicated capacity has been deployed, spurred by the rapid growth of intra-Asia volumes. The fragmented nature of the intra-Asia market renders an accurate assessment of the actual market size difficult. Even amongst the established intra-Asia carriers, the understanding of the market remains very sketchy.'
   Randy Chen, special assistant to the president of Wan Hai Lines, said that one advantage the intra-Asia trade has is more balanced cargo flows than long-haul trades, which typically are weighted heavily in the direction away from Asia.
   Due to China's stimulus package and growth in regional consumption, the intra-Asia trade was the first to recover, Chen said. And demand was quickly met by increased supply through the activation of idle capacity and new services.
   Lines will have to consider the trade-off that the intra-Asia presents ' shorter voyages mean more turns, which can mean more potential revenue collection points. But shorter voyages also mean less revenue per voyage.
   APL President Eng Aik Meng, also speaking at TPM Asia, added the growth of intra-Asia activity may exacerbate the container equipment crunch that hit earlier this year. Eng said the crunch is likely to be felt again in 2011.
   'It's eased, but the problems are underestimated,' he said. 'It used to be that for every slot, you needed two boxes, but with slow steaming, it's three boxes. Equipment manufacturers can't produce enough to meet demand in 2011, especially with new users of containers (he mentioned grains as one commodity that's shifted to boxes). And if equipment goes to inland areas of Asia, it increases the turnaround time for those boxes significantly.'
   Another development to watch is more progression in free trade agreements. The ASEAN-China FTA will expand to four more countries in 2015 ' Laos, Cambodia, Burma and (most significantly) Vietnam. That would all but eliminate tariffs on 90 percent of goods moving between China and those countries. Taiwan and Singapore are set to discuss an FTA in 2011, as are China and South Korea, and trade ties between China and Taiwan are ever-growing since a d'tente in 2008.
   Hsieh said linking the so-called 'Northeast Three' of China, Japan and South Korea with the 'ASEAN 10' brings unlimited growth potential.
   'The potential of the domestic markets in Southeast Asia will lead to demand in shipping services,' he said.
   Hsieh said intra-Asia trade will also benefit from new road links being developed between China and Southeast Asia ' most notably a road from Nanning to Singapore that would reduce road transit time from Nanning to Bangkok from one week to three days.
   Another regional rail network would better link Southeast Asian nations in the greater Mekong River area, and would connect to Kunming and Dali in Southwest China. That network is scheduled for completion between 2020 and 2025.
   'This shows governments are not only agreeing on FTAs, but are also actively communicating and cooperating in infrastructure development,' Hsieh said.
   For shippers, particularly those focused on the transpacific and Asia/Europe lanes, the growth of intra-Asia trade merits attention. Developments in this trade often come as a result of what's occurred first in long-haul trades.
   But as carriers watch for growth in intra-Asia volume, it's possible more slots on long-haul trades could well be used to serve intra-Asia markets rather than just sweeping up export cargo intended for North America and Europe.
   Certainly, the cascading of larger vessels into the intra-Asia trade is no longer a predicted event, but an already existing fact. (Table 2)
   'We concentrate too much on east/west trades with large vessels,' Hsieh said.