In comments to the Financial Times this week, Michael Fitzgerald, the deputy Chief Financial Officer of Hong Kong based container shipping line OOCL admitted that the shift of sourcing by Western companies out of China was “happening, it’s real” but that the “absolute scale of China is so huge that even if Vietnam is growing by a bigger number, and China is growing by smaller number, that’s still a huge proportion of the supply chain”. Mr Fitzgerald went on to suggest that the move to shift production out of China would be “incremental”, with time need to make investments in capacity.

In contrast Jeremy Nixon, the CEO of Ocean Network Express, speaking at a conference in Singapore, articulated a different perspective on the China trade: “We are seeing a de-leveraging of trade between the US and China,” he said, with “many companies in the US… looking to reduce down the amount of imports they have got coming from China.” As evidence of this, he said that there had been a 10% fall in containers shipped from China to the US. The reason for the shift, Mr Nixon said, was “geopolitics”.

One might be tempted to suggest that both are right. China has enormous capacity in many areas of manufacturing and replicating this elsewhere will take considerable time and money. However, as Mr Nixon describes, there’s a clear shift towards creating sourcing locations outside of China which is having a noticeable impact on the container shipping business but also must be affecting other sectors such as airfreight. Although some sectors, such as mobile phone production, have been engaged in the process of relocation for some time, overall, the shift has taken-place remarkably suddenly. The role that economics has played in this change has been secondary to other, political issues. Therefore, it is difficult to measure how long or how far the trend away from China will go. What does seem likely is that the impact on logistics markets will be very significant, with trade patterns likely to see more change over the next ten years than they have over the previous several decades.

Author: Thomas Cullen

Source: Ti Insights

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