Signs of manufacturing migration following US tariffs on China
THERE is growing evidence that some US companies are heeding to US President Trump's demand for them to 'immediately start looking for an alternative to China, including bringing your companies home and making your products in the USA,' with the escalation of US-China trade tensions
THERE is growing evidence that some US companies are heeding to US President Trump's demand for them to 'immediately start looking for an alternative to China, including bringing your companies home and making your products in the USA,' with the escalation of US-China trade tensions.
Only half of his order is being heeded, reports American Shipper, adding that to avoid US tariffs of up to 25 per cent on most imports from China, many producers are indeed moving production out of China. Yet rather than shifting manufacturing to the US, most are instead opting for low-cost options elsewhere in Asia to maintain profit levels.
'Definitely we are seeing many of our BCO (beneficial cargo owners) customers - especially those in the 25 per cent tariff category - changing strategy to ramp down China and ramp up Southeast Asia production,' said Vivien Cheong, regional sales manager APAC at Ticontract & Tim Consult.
According to Japanese financial services group Nomura, unless the US and China strike a trade deal, this is a trend that will accelerate once the effects of front-loading to avoid US tariffs declines and China's exports to the US drop away.
'There will be some relative winners that benefit from trade diversion, and this looks set to intensify.
'Exports to the US are booming in Vietnam and picked up strongly in Taiwan and the Philippines, followed by Malaysia, Japan, India and Singapore,' Nomura said.
All of this is boosting container and air cargo volumes at non-China hubs. However, handling the extra cargo is proving difficult. Indonesia's lead gateway port, Tanjung Priok, and Manila's container terminals are all desperately short of capacity and suffer from awful hinterland congestion. Bangladesh, another major beneficiary of production shifts, also suffers regular port and airport delays due to a lack of modern infrastructure.
Vietnam has been the recipient of huge investments by manufacturers, with cargo volumes at its ports up 20 per cent last year and container traffic rising 26 per cent. However, congestion is also a growing problem at its ports and airports.
Kelvin Leung, CEO of DHL Global Forwarding Asia Pacific, said the shift of manufacturing out of China to other parts of Asia started before the US-China trade war.
'Some years back prior to the current trade environment, we had already seen a number of companies begin to move their sourcing and production to other Southeast Asian markets as well as to South and North Asia - simply for the expansion and diversification of their manufacturing bases, to capitalise on lower labour cost or prompted by labour shortage in their areas of operation,' he told New York's FreightWaves.
Mr Leung believes there is a limit to the shift, not least because moving supply chains is an intensive undertaking and not one that all companies will take on unless the economics make compelling sense.
Nomura doubts whether the tariff war and the production shift away from China will even help President Trump achieve his aims. 'The escalating trade war may narrow the US bilateral trade deficit with China but, due to a surge in trade diversion, it is unlikely to narrow the total US trade deficit,' said the analyst.