Neil Johnson, Co-Founder of customs firm TNETS, recently joined Mike King for an episode of the Dimerco-sponsored Freight Buyer’s Club podcast. TNETS processes some $200 billion dollars in trade each year and Johnson talks frequently with shippers whose supply chains run through the Asia-Pac region.
Shifting geopolitical and demographic landscapes and China’s uncertain role as a reliable long-term manufacturer, will reshape global trade and shipping flows over the rest of this decade. This will create new opportunities for countries and companies in Asia, according to Johnson, who said his company receives inquiries every day from clients “looking to diversify the geography of their supply locations.” Listen to the full podcast.
NOTE: For companies seeking to expand into Southeast Asia, check out Dimerco’s eBook on The Logistics of China Plus One, which talks about smart ways to ensure success when entering a new market.
Johnson noted that container lines, airlines and logistics providers have already been preparing for this sourcing transformation by investing heavily across Asia to support a China Plus One Strategy.
“The carriers are coming [to Southeast Asia],” said Johnson. “We are seeing more investment in freight services and more investment in airlines around the region. I think, the physical part [of this procurement shift] is probably the easier part to deal with.”
The sourcing shift is accelerating as China’s reliability as a long-term trade partner is questioned due to its closeness to Russia, its saber rattling over Taiwan, and rising tensions with the US. Drewry Maritime Research reported earlier this month that container shipping is “in the crosshairs of a superpower tussle that could divide the world and reshape trading networks.”
China’s severe Covid lockdowns, aging population, rising production costs, and US tariffs on Chinese imports are also major push factors for manufacturers and retailers assessing their sourcing options.
However, pull factors are also playing a role in this decoupling from China, a trend that will change container shipping and air cargo trade flows, according to Johnson. For example, the burgeoning middle classes emerging in countries with younger demographics than China are creating new markets as well as providing ready flows of labor. Here’s a short clip from the podcast.
“In Indonesia the middle class is going to be huge, and they are going to have tremendous spending power,” added Johnson. “Indonesia is definitely going to benefit from a China Plus One strategy – or plus two, or plus 12.
“But Indonesia needs additional investment in logistics. That has been forthcoming, but very, very slowly.
“There are new ports being built, airports are getting some investment, but it’s still not going to be sufficient to meet the needs of that growing middle class. Indonesia is the largest economy in Southeast Asia and it’s going to benefit from decoupling [of manufacturing from China but] it needs more infrastructure across the archipelago.”
Johnson said Bangladesh and Vietnam in Asia, and Mexico in the Americas, would also be beneficiaries of the shift of the China Plus One Strategy. But all require improvements in their trade and customs processes, logistics, shipping and air freight infrastructure.
“Having government departments that have the know-how to smooth the way for businesses to flourish, to issue licenses, to get out of the way when infrastructure and money is made available – those are critical things that are slow in coming around the region.”
Johnson added: “The decoupling from China is a very, very long-term project, compared to the speed with which carriers can, for example, switch on and switch off services. In order to, for example, replace a semiconductor plant that has been churning out product very, very smoothly and consistently in China – that’s going to take 3–5 years, even in a well-developed economy such as Singapore or Malaysia.
“So, there are issues with decoupling, but there are other drivers which are going to drive this diversification.”