PR: Agility reports 8.1% Q2 earnings increase
Press release KUWAIT – August 13, 2019 – Agility, a leading global logistics provider, today reported ...
The trade dispute between the US and China could have fewer ramifications across global container supply chains than initially thought.
According to new research from Drewry, although the transpacific trade, particularly headhaul eastbound, is expected to be hit hard by the introduction of billions of dollars’ worth of new tariffs, the way China has established itself as the world’s factory means other trades should be less affected.
“Potential losers in this trade war will be those countries that provide the raw materials and semi-finished goods to China that go into the re-export of the final products to the US,” said the analyst. “The US itself could suffer as China uses up some of its exports for re-exports.”
It added: “The thing is that China has developed its manufacturing capacity to such an extent that it barely needs inputs from the rest of the world to support its exports, which should limit the collateral damage.”
Drewry explained that the tariffs were likely to increase demand for manufacturing in countries other than China, which, due to the way many production processes typically involve several tiers of manufacturing with intermediate goods also being shipped around the world, container lines could actually see a volume fillip on other trades from the dispute.
“As final goods sourcing moves to countries currently without the same manufacturing eco-system as China, they will require more intermediate inputs, meaning more production fragmentation.
“Where those links establish themselves will determine how beneficial the process is for shipping lines. More intra-Asia trade will boost demand for shipping services and put a greater onus on smaller feeder ships, whereas greater regional trade in North America and Europe would be less advantageous due to overland opportunities,” it said.
“There will be some short-term disruption to the container market as new trading links are developed, but further fragmentation of production will boost the need for shipping, assuming demand levels are sustained. For the foreseeable future, China will remain the world’s container export hub, albeit a slightly smaller one,” it concluded.
And a senior freight forwarding executive told The Loadstar at the recent Transport Logistic show in Munich that the trade dispute could present a boon for forwarders willing to help shippers design their supply chains.
Essa Al-Saleh, chief executive of Agility, said: “Trade will follow the path of least resistance. People will find other opportunities. Some movements are opportunistic because of trade barriers, some are more long-term, based on labour, regulations or a combination of both.”
“Global supply chains are becoming more complex – there are lots of locations that can add more value, and there are some trends towards making supply chains shorter, some of it due to cost, or predictability.
“Costs are going up in China, but they have built a great ecosystem, that gives it a certain stickiness, so it’s hard to move out. Tariffs will have a negative impact on Mexico. Forwarders don’t just offer port-to-port; it’s end-to-end, and they can add value and service in between.
“You need agility and resilience in the supply chain – products may shift, or there may be quotas – the key thing is to understand the pain point: forwarders are always in demand, it’s never all doom and gloom; it’s about engagement with clients,” he explained.