Intra-Asia trade will increasingly benefit from the rapid growth of consumption in Asia as a higher percentage of cargo is shipped to end markets within the region versus destinations in other parts of the world, according to a new study from HIS Global Insight.
China and India’s share of world consumption is set to rise from 12% in 2016 to 27% by 2035.
IHS predicts very rapid growth in consumption in emerging Asian markets over the next two to three decades, with Asia Pacific consumption as a share of world consumption forecast to rise from 27% in 2016 to 39% by 2035. This will translate into continued rapid growth in intra-Asia trade.
Intra-Asia containerized trade dominates all other container trade lanes in terms of volume, and is forecast to grow at 5.1% per year over the medium term outlook to 2018.
Total containerized trade in East Asia is forecast to rise from 25.9 million TEUs in 2014 to 31.6 million TEUs by 2018.
eCommerce Drives Growth
The link between rapid growth in consumer spending and online sales will be a primary driver of growth in cargo transportation and logistics services in the region, particularly in China and India. The Chinese e-commerce market is already the largest in the world, having overtaken the US, with an estimated 400 million Chinese purchasers already buying online. Chinese online retail sales of goods and services in Q1, 2016 reached $158 billion, up 27.8% year-on-year, driving rapid growth in China’s logistics industry.
The Indian e-commerce market is much smaller than China, but is growing very rapidly, with e-commerce sales estimated to have risen from USD4 billion in 2009 to $40 billion in 2016, helped by the rapid growth in sales of smart phones and tablets, which have facilitated online buying by Indian consumers. In Q1, 2016, sales of smart phones in India grew by 23% year-on-year.
In Southeast Asia, e-commerce is also growing rapidly, buoyed by the rapid growth in the size of the middle class. IHS forecasts that Indonesia will grow at about 5% per annum over the next decade, with GDP forecast to reach $3.8 trillion by 2030, up from $930 billion in 2016. The Indonesian e-commerce market is already estimated to be worth $6 billion in 2016, dominated by e-sales to Indonesian consumers for travel-related spending, notably on airlines and hotels.
Supporting the expansion of consumer spending will be the development of more manufacturing in the region, with Southeast Asia set to continue to enjoy growth in the lower-end manufacturing segment, including products such as garments and electronics, much of it at the expense of China.
Asia’s changing manufacturing patterns have already driven extraordinary growth in some Southeast Asian countries. Vietnam, for instance, has seen the annual output value of its electronics sector rise from $6.9 billion in 2011 to $45.8 billion last year. China’s rising wage costs make it difficult for coastal provinces to compete at the lower end of the manufacturing sector. This is an inevitable consequence of becoming a middle income economy, but China’s manufacturing sector is shifting towards more complex products. The Chinese government introduced the ‘Make in China 2025’ strategy last year to drive a shift in manufacturing towards higher value segments including power equipment, precision tools and robotics, railway equipment and aerospace.
With projected growth of 7.5% per annum over the medium-term to 2020, India will be increasingly important in terms of the region’s GDP growth. The Indian government led by PM Modi is implementing the ‘Make in India’ initiative to accelerate manufacturing investment, accompanied by government efforts to ramp up infrastructure development. A key objective of the Indian government’s focus on infrastructure and manufacturing is to boost the manufacturing sector share of total GDP. This is currently just 15% in India, well below that of East Asian countries including South Korea and China, where the share is about 30%. There are early signs that the Indian government’s initiatives are starting to result in stronger investment inflows. For example, Foxconn recently announced a USD5 billion investment plan to build electronics factories in India. Government commitments to develop infrastructure, including the ports and transportation sector, will help in this regard.
Cross-border e-commerce is increasingly the focus of supply chain and logistics concerns in the private and public sectors in China, India and other parts of Asia, where consumption and online sales are rapidly on the rise. Up to 20% of China’s total import and export trading volumes are now cross-border e-commerce-related and the rapid rise in the volume and value of the trade is driving change in logistics management solutions and transportation networks.
China leads developing Asia in terms of its approach to e-commerce supply chain support. Government policy is to establish integrated supply chain support bases for e-commerce, primarily in port-centric free trade zones such as Tianjin and Shanghai, where port infrastructure, hinterland links and trade management regulations and processes are relatively mature.
Companies can avail of streamlined customs clearance and preferential tax policies that better suit inventory management for online sales. The aim is to foster better integration of retail, trade and logistics services for faster and more efficient goods distribution and provision of e-commerce-related services such as quality checking of goods, foreign exchange transactions and reverse logistics solutions.
The spread of e-commerce and Internet penetration to the north and west of China is driving demand in these regions for development of more modern and integrated logistics facilities and networks to efficiently handle order fulfillment, sorting, distribution and returns. These regions have typically seen limited direct investment in logistics networks, particularly on the part of foreign logistics players, but the opportunities from growth in consumption and online sales will gradually drive development of more comprehensive and integrated goods handling and distribution systems.
In India, high logistics costs that cuts into profitability clearly undermines the full potential of the e-commerce sector. The main challenge is the poor condition of basic cargo transportation infrastructure. Ports and hinterland connections are often congested and there is a lack of large-scale, modern warehousing for efficient, scalable and speedy handling and distribution of goods.
There is a now strong focus on developing port-centric supply chain networks in India with heavy investment from government, the private sector and foreign operators in basic infrastructure, starting with seaports and hinterland links. This will support the development of the e-commerce sector in the country as private logistics players continue to add e-commerce-specific solutions and services.