Intra-Asia Trade offers Rays of Sunshine amongst Stormy Waters

How the Intra-Asia Trade is influencing the container shipping industry

The container shipping industry is proving to be stormy waters for ship owners, operators and investors – with demand remaining soft whilst new capacity continues to come on stream. The major challenge is that the industry still has too much capacity chasing not enough cargo, resulting in on-going financial challenges for the sector. The fundamental lesson from prior cycles - that reducing the price per box does not increase the total amount of boxes to be moved – seems to have been lost along the way.

The consequences of the brutal competition driving declining freight rates – considered by some to reflect an absence of courage and discipline – are that even shipping lines that managed to increase their container volumes have still experienced declines in revenues – one example being a 14% increase in volume with a corresponding 21% decline in revenue.

Amongst all the storm clouds, the Intra Asia trade offers some rays of sunshine.

Intra-regional trade accounts for 41 per cent of global containerised ocean freight, of which Intra-Asia container flows represent 79 per cent, valued at 2.9 trillion dollars. Intra-Asia container traffic has already overtaken Trans-Pacific volumes and the combined container volumes on Intra-Asia and Asia-Middle East are together forecast to grow to six times current levels by 2030.

With healthy growth in recent years, Intra-Asia container volumes grew to 26 million TEU containers in 2012 and are projected to keep growing by a healthy average 7 per cent per annum to reach 33 million TEU’s in 2015.

All this in a regional environment with distinctly different geographic characteristics than North America or Western Europe, where contiguous land mass lends itself to long-haul road and rail cargo transport linkages.  A significant proportion of the intra-Asia trade has no option but to travel on the water – for example the Philippines, Indonesia and Japan are island nations, inaccessible by land routes from other countries. Even when countries do have land connections available, the combination of infrastructure limitations and cross border inefficiencies often make water-borne transportation a much more efficient and cost effective option.

The average cargo journey length within Asia is much smaller than other major trades – for example Intra Asia container transportation distances are typically 500-1,000 nautical miles, one tenth the typical distance on the Asia-Europe trades.  The intra-Asia trade is served predominantly by mid-size container vessels - typically ranging from 1,200 - 3,500 TEU capacity - and is very fragmented with many small and medium-sized ports that have length and depth restrictions, numerous shipping lines, hundreds of local players providing barging services and thousands of freight forwarders.

The healthy growth in trade and commerce is fuelled by robust and rising consumer and industrial demand throughout Asia - most notably in China, India and the ten ASEAN nations in South East Asia. India-China trade is projected to grow to USD 100 billion by 2015 - a 50 per cent increase over current trade levels, whilst predications are for ASEAN to become a ten trillion dollar economy by 2030. We truly are in the Asia Era!

 

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