After the collapse suffered by the entire supply chain due to the logistical blockage caused by excess demand during 2020, the shipping industry is facing a very unoptimistic forecast for 2024 with an economic recession on the horizon.
However, this is not the only problem the logistics industry will face in the coming years. The large Chinese factory is slowing down its production rate for two reasons: internal demographic problems and a fierce competitive battle from the emerging countries around it, such as India, Vietnam and Thailand.
Shipping lines on the razor’s edge. Following the 2020 supply chain crisis, the price of distribution containers soared in the face of rising demand. As detailed in the Review of Maritime Transport report produced by the UN, during 2022 the price of shipments from China’s ports plummeted back to pre-pandemic levels. This return to normality causes a serious oversizing problem for shipping lines, which will lead to massive layoffs.
More Asia, less China. The change in the international logistics scenario highlights the new commercial chessboard in which shipping lines are looking to Asia for new routes to distribute raw materials between producer countries and manufacturers to strengthen the supply chain, and not so much between the major Chinese ports and the West, as was the case until now.
Despite the trade embargo on China, the Asian giant continues to be the main supplier of the rare earths needed to manufacture technological components, controlling 70% of the world’s mining production and almost 85% of processing capacity. This has prompted shipping lines to strengthen intra-Asian routes between China and countries such as Thailand, Vietnam, Malaysia, Indonesia, the Philippines and Japan.
Shipping lines have increased the supply chain of raw materials arriving in the new countries to which factories formerly located in China have moved to avoid the trade blockade established by the United States.
Vietnam, the new manufacturing hub in Asia. One of the countries that has benefited most from the offshoring of production in China has been Vietnam. In addition, the country has a very extensive maritime profile, making it easy to connect new maritime routes bringing raw materials closer to production areas, beyond the main ports of Ho Chi Minh City or Port Saigon.
According to logistics portal Loadstar, traffic in that part of Asia has increased by an average of 44% during 2022. If we focus on Vietnam’s data, the increase in shipment volume between that country and the United States is 83% over the last four years, compared to 27% in China shipments or Hong Kong’s -7% debacle. Vietnam recorded 2019 traffic of 5,986,288 TEUs – the cargo capacity held by a standard container – versus 10,949,964 TEUs in 2023.
Reuters sources say Vietnam has doubled foreign investment in the final stretch to 2023 with investments worth $5.3 billion, up from an average of $2.2 billion in previous years in the last quarter. So far this year, Vietnam has received $25.76 billion. Around 90% of this investment is for the deployment of new factories in the country.
Despite the slowdown, China activates ‘port diplomacy’. After more than two decades of exponential acceleration of its production activity, China’s momentum continues, despite the fact that growth has remained stagnant. A good example is that China has not created new maritime routes between China and the United States, maintaining the 46 direct routes that already existed. In contrast, Vietnam has gone from 13 routes it had in 2019 to 23 in 2023.
To compensate for this stagnation, the Chinese government has initiated a new avenue of geopolitical influence in the area by investing in port infrastructures in these new developing countries. These investments have given rise to what is known as “port diplomacy” whereby China would maintain a strong influence on third countries by conditioning the development of their ports. China’s strategy with respect to commercial ports in other countries has many similarities with the expansion of U.S. military bases during the middle of the last century. The only difference is that the current battlefield is in the markets.