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SHIFTING WORLD TRADE PATTERNS: THE INTRA-ASIA CASE

Prof. Yehuda HAYUTH

Chairman, Wydra Shipping and Aviation Research Institute

Tel. 972-526922223 Fax 972-48379099

University of Haifa, Mt. Carmel, Haifa, Israel, 31999

omcyehuda@oriyal.

ABSTRACT

Globalization of the world economy is a prime factor for the structural change in the

world's seaborne trade and maritime transportation. It is responsible for the shift in the

center of gravity of ocean borne trade from the Atlantic Ocean to the Pacific Rim and the

acceleration of the growth on the Newly Industrial States (NIS). In the last decade and

somewhat before, the Intra-Asia trade gradually, but systematically, has closed the gap

with the two prime world's trade routes: the Far.East – Europe and the Far. East – North

America trade areas. This growth was primarily based on export driven development.

Lately however, a shift in this trend can be identified. A growing domestic demand for

trade by Asian's countries is eminent and larger volume of trade within the region can be

foreseen. The main objective of the paper is to focus on the following question: Does the

emerging economies in Asia in general and the Intra Asia-trade in particular are going to

be leading the shifts off the dominancy of the East-West trade routes and establishing

themselves as the largest trade area and the focal point of the container shipping industry

in the coming decade? Intensification of financial and economic links among the Asian

countries and the growing role of the Intra-Asia in the global trade are among the key

indicators to be examined in this paper.

KEYWORDS

Intra-Asia; ASEAN-China FTA; Cascading.

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SHIFTING WORLD TRADE PATTERNS: THE INTRA-ASIA CASE

1. DEFINING THE INTRA-ASIA MARKET

Shipping industry and international trade experts and analysts discuss for the last several

decades the development of Intra-Asia trade. In the last few years, more than ever before,

the subject receives greater attention in professional shipping journals and Maritime

Conferences TPM Asia Conference (2010). Unlike other major containerized trade routes

such as the Transpacific, Transatlantic or Asia-Europe trade, the definition of the Intra-

Asia trade is not clear. In fact the size and the volume of the trade in the Intra- Asia

market is not clearly understood. It is not than a surprise to see a very wide range of

estimates related to this market. It is essential to clarify first the definition of the Intra-

Asia market before attempting to analyze the trade and it's potential. The definition

should consider two different aspects: boundaries and scope. The traditional and the most

common geographical definitions include the ASEAN countries. The Association of

Southeast Asia Nations was establish on August 8, 1967 in Bangkok with the signature of

the ASEAN Declaration (Bangkok Declaration) by the following founding countries:

Indonesia, Malaysia, Philippines, Singapore and Thailand. Five more countries: Brunei,

Vietnam, Laos, Miramar and Cambodia joined in between 1984-1999 to making up the

ten Member States of ASEAN. Its aims include, among others, the acceleration of

economic growth, social progress and cultural development. Another definition of Intra-

Asia which is being used includes two sub regions: North Asia (Japan, South Korea,

Taiwan, China and Hong Kong) and South East Asia (Philippines, Singapore, Thailand,

Malaysia, Indonesia, Vietnam, Cambodia, and Myanmar) for a total of 13 countries.

These two definitions do not defer only by the number of States, but much more

significantly by the size and economic power of the countries involved, let alone the

spatial spread of States which are included. Obviously any data and analysis of the "Intra-

Asia" market of the first definition would greatly be different from the second one. If this

may be somewhat confusing, one should not be surprise to come across data which

include in the Intra-Asia narket also the Indian Sub continent, the Middle East region and

even Australia and Micronesia. Another perspective which must be clarified and define in

order to allow a comparable analysis of the intra-Asia trade is related to the scope of this

market and range of shipping services which are being considered in any given

calculation. The Intra-Asia is a very fragmented market. At least three different types of

services can be identified in the trade routes in the region. The first one is the strictly

intra-Asia cargo, moving between shippers and customers of Intra-Asia states, according

to one definition or another. The second type of service is the feeder trade, in which the

port of destination of the cargo is just an intermediate stop before being loaded to another

vessel. Transshipment is another word to describe this kind of service. Domestic trade is

yet another service in the region. Does the relative large volume of trade that is moving

between South China to North China is being added to the Intra-Asia volume of trade?

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The precise answers to this dilemma will have a great impact on the actual volume of

trade which composes the Intra-Asia market.

2. EVOLUTION OF CHINA AND THE INTRA-ASIA MARKET

Trade between China and other countries in Asia is not only a modern phenomenon. As

early as 1776 in his book "The Wealth of Nations" Adam smith wrote: "China is much

richer country than any part of Europe" as early as the ninth century, trade between

Chinese , Indian, Japanese, Siamese and Arabs in the Middle East was much greater than

those within Europe, Huang Palanca (2011). There is no doubt that the modern

renaissance of several parts of the developing countries, particularly in Asia, is due to the

process of globalization of the economy and the division of labor since the early 1970s.

The traditional structure of the world economy has shifted in a direction that is quite clear

– the internationalization of production. Taylor and Thrift (1982). This trend is generally

considered to be synonymous with the industrialization of the developing countries.

Heskett (1986). The growth of industrial production and international trade were

particularly concentrated in Asia: Taiwan, South Korea, Hong Kong and Singapore,

before shifting to China. The globalization trend led to a shift in the center of gravity of

containerized trade from the Atlantic to the Pacific Ocean, Hayuth (1987). 1n 1973,

seventeen percent of the world's container traffic was handle in Asian ports and it rose to

29.6% in 1984 Containerization International Year Book (1974, 1985). Since the mid

1980s, Asia became the world's largest Continent in terms of container handling. In 2010,

eight of the 10 largest container ports are from the Far East and South East Asia, CI-

Online (2011). The next stage of development of the Intra-Asia market is strongly related

to China. On December 2001 China has joined the World Trade Organization. This was a

landmark event for China and later on for the Intra-Asia market. Low production cost,

and tax incentives, among others, have started a very large inflow of foreign investment

to China. As a result, many large firms have shifted their production sites to China. The

Chinese market share of the total Asian export from the Far East to United States grew

from 45% in 2001 to 68% in 2009 and more than doubled its market share of the Far East

export to Europe from 31% in the year 2001 to 69% in 2009.

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Figure 1: China Increase Share of Asian Export Market

Source: (Hsieh 2010).

The unprecedented growth of China had certainly a great impact on the Intra-Asia market.

The commercial ties between China and the Association of Southeast Asian Nations

(ASEAN), has gradually strengthen. In November 2004, at the 10th

ASEAN Summit in

Vientiane, the Economic Ministers of ASEAN and China signed the Agreement on Trade

in Goods (TIG) of the Framework Agreement on Comprehensive Economic Cooperation

between ASEAN and China Cordenillo (2005). Another important landmark in the

development of the Intra-Asia trade is the ASEAN-China Free Trade Area (ACFTA)

which came into effect on January 1st 2010. The agreement between China and six

founding members of ASEAN – Singapore, Thailand, Malaysia, Brunei, Indonesia and

the Philippines create an economic market with over 1.7 billion consumers – the biggest

Free Trade Area in the world in terms of population size. As of January 1, 2010, the

ACFTA cut tariffs on goods exported from ASEAN bloc to China from 9.8% to 0.1%. In

the other direction, tariff levels fell from 12.8 percent to 0.6 percent. Johnson (2010) The

immediate boost to the trade has been remarkable. From January to August 2010, the

trade between China to the six ASEAN countries grew by 40% to reach $88.1 billion and

the trade between the six ASEAN countries to China grew by 54.4% with $97.3 billion.

The Growth rate of the total bilateral trade between the two was 47.2% in the first eight

month of 2010 Hsieh (2010). These figures represent only the beginning of the impact of

the Free Trade Agreement discussed above.

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The second phase of the ASEAN-China Freight Trade Agreement carries an additional

potential for expansion of the Intra-Asia trade. In 2015, four more countries - Vietnam.

Cambodia, Laos and Burma will join in and most of tariffs in the trade between them and

China will be eliminated. Additionally, Taiwan and Singapore are expected to start

negotiation of Free Trade Agreement with China this year. The China – Tawain trade

relations is particularly important in light of the growth of the trade between them in the

last two years and the fact that Taiwan and China signed Economic Cooperation

Framework Agreement (ECFA) on June last year. These figures represent a new era of the

Far East and Intra-Asia markets. If in the earlier phase of the economic globalization, the

engine of trade growth in these regions was low wages and low production cost. In the last

few years however, the catalyst of the growth of the trade is the increase in consumer

power in China and the other countries in the region. Moreover, the fact that the volume of

trade from ASEAN countries to China is larger and grew faster than in the opposite

direction is a clear indication that ASEAN countries become suppliers, among others, of

the fast growing domestic market. Randy Chen, the director of Wan Hai Lines, the biggest

operators on the Intra-Asia trade routes, stated that most of the volume on the Intra-Asia

trade today is based on semi-finished goods bound for assembly in China and re-export to

Europe and the US. According to Mr. Chen, The true sign of change will occur when

semi-final goods become a major component of cargoes on return voyage from China for

assembly and sale in counties like Indonesia and Vietnam Leander (2011).

3. FLEET CAPACITY AND VESSEL SIZE CASCADING.

The growth of Intra-Asia market and trade has received in the last few years considerable

attention from liner carriers. The interest came not only from the local carriers but mainly

from the long-haul liner operators who were involve in the high volume trade routes. As

we have seen previously the difficulties to define the Intra-Asia trade boundaries, it is

difficult as well to isolate and define the capacity of the fleet which operates in this

market. The various interpretations of this market obviously reflect on the total number of

container slots available in the Intra-Trade lanes. According to a narrow definition of lines

operating between the Far East and South East Asia markets, Table 1 presents the top 20

shipping operators in the Intra-Asia trade. The data is base on dedicated capacity

deployed, including coastal and feeder capacity and excludes trunk routes. This list

includes a considerable capacity of subsidiary lines of several of the largest Liner carriers

in the global trade together with large regional carriers and small niche operators Johnson

(2010). Wan Hai/Interasia is the leading capacity provider of the rank with 7.5% share of

the trade capacity. Wan Hai is also an exception among the leaders of the list in that it has

pulled

Table 1: Top 20 Intra-Asia Carriers by Capacity*

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Rank Carrier TEUs Capacity share

1 Wan Hai/Interasia 103,700 7.5%

2 CSCL/Puhal 95,600 6.9%

3 COSCO 95,100 6.6%

4 Maersk/MCC 81,800 5.9%

5 Evergreen 71,700 5.2%

6 OOCL 52,700 3.8%

7 TS Lines 48,800 3.5%

8 APL 41,400 3.0%

9 KMTC 40,400 2.9%

10 RCL 38,700 2.8%

11 SITC 38,600 2.8%

12 CMA CGM/CNC 36,000 2.6%

13 Yang Ming 31,900 2.3%

14 Sinokor 26,600 1.9%

15 MOL 26,300 1.9%

16 STX Pan Ocean 25,500 1.8%

17 PIL/ACL 23,900 1.7%

18 K Line 22,600 1.6%

19 Grand China Logistics 22,300 1.6%

20 Samudera 22,100 1.6%

*Based on dedicated capacity deployed (includes coastal and feeder capacity)

Source: Johnson, E, American Shipper, Dec. 2010.

out of the long haul lines serving the Asian market. The following five operators in the

list – China Shipping, COSCO, Maersk Line, Evergreen and OOCL are all leading

operators serving the Asia Europe and Asia North America trade. Of the top 10 global

carriers, only Hapag-Lloyd and CSAV have not yet developed any significant intra-Asia

feeder capabilities of its own AXS Alphaliner (2010).

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The world container vessels' fleet and the order book of the shipyards show clearly a trend

of increasing size of container vessels. The largest new vessels are being deployed in the

Far East – Europe routes and to some degree the transpacific trade. In light of that trend, it

is expected to observe vessels cascade from the main East – West trades to regional

markets and even feeder services. In the Intra-Asia trade, which was traditionally based on

smaller vessels, the cascading trend is already evident. At the end of 2010 there were at

least six Intra-Asia services operating Panamax vessels. Most of the largest vessels

employed in the Intra-Asia trade are Chinese coastal trade serving the domestic market.

Currently, a lot of the vessels which are operating in the Intra-Asia trade are at the 1700-

1800 TEU capacity and many are at the 2000-3000 range, due to the limitations of the

ports' infrastructure and the volume of the trade. In light of the growing trade in the

region, the extensive upgrading of ports' infrastructure in countries such as Thailand,

Vietnam and Indonesia, and the increasing deployment of large new vessels in the main

East-West routes, there is potential of growing cascading of larger vessels in some

segments of the trade. On the other hand, the Intra-Asia maritime trade is characterized by

intense competition and relatively low margin of profit. Additionally, The Intra-Asia

dedicated operators may need to adjust their act based on developments that might took

place in the long-haul trades and the modus operandi of the large carriers which normally

has an impact on the Intra-Asia trade. All these may reflect on the optimal size of vessels

that might be deployed in the various segments of the Intra-Asia trade. The fast growing

trade in the region has introduced 26 new Intra-Asia routes with 75 vessels, linking China

and ASEAM countries between January-September 2010 alone. 22 of the new lines

deployed 61 vessels of 400-2000TEU capacity and 4 new lines introduced 14 vessels of

2500-4200TEU capacity (Table 2).

Table 2: Size and Number of Vessels in 26 New Intra-Asia new routes in 2010

400-1000TEU 1100-2000TEU 2500-3000TEU 3100-4200 TEU

No. of routes 9 13 3 1

No. of Vessels 20 41 11 3

Source: Alphaliner

More recently, In another case, mainline operators such as APL, TS line, STX and KMTC

are deploying much larger vessels with the result that on trades such as North Asia (China)

– Indonesia route vessels of 1000-2000TEU have being replaced by 3000-4000TEU

vessels. This is an indication that because of the trading potential of the region, Intra-Asia

market became attractive to many shipping lines. But at the same time, Biju Oommen,

Vice President of OEL added: " as a result, these route are becoming prohibitive for feeder

operators while the larger ships have created many more slots and changes in pricing

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dynamics. Freight rates on China-Indonesia route have plummeted to about USD200 per

TEU." Galhena (2011). The above case illustrates some of the complexities in the Intra-

Asia Market. Perhaps also, that sometime there might be situations and conflicting

perspectives of segments of the large Intra-Asia market which needs to be evaluated in a

separate scale.

4. THE INTRA-ASIA TRADE

The fragmented structure of the Intra-Asia market cause not only unclear geographical

boundaries and different assessments of the capacity and slots allocations in this markets,

but also it reflects on the ability to present an accurate figures on the volume of trade, even

amongst the experienced operators in the Intra-Asia trade (Dafni 2010). Estimates of the

current volume of the Intra-Asia trade, based on variety of assumptions and definitions,

range between 14 million TEU to 26 million TEU. AXS Alphaliner (2010). Based on data

of the Intra-Asia Discussion Agreement (IADA), the dominant conference operating in the

Intra-Asia market, the volume of the trade in this market in the year 2010 was estimated at

14 million TEU (IADA). However, statistics behind this estimate comes from the 31

shipping lines members of IADA, which constitute about 60% of the capacity of over 100

carriers that are involved in the Intra-Asia market. Several of the Intra-Asia top 20 carriers

(see Table 1), such as MOL, STX Pan Ocean, Grand China Logistics and other significant

carriers such as MSC and Sinotrans are not members of IADA. Moreover, IADA figures

do not include the coastal traffic, particularly the Chinese coastal trade, in which the

largest vessels in this market are being deployed. COSCO and CSCL carriers who

operates in this important segment of trade are responsible for an estimated about 5.0

million TEU alone in the year 2010. The global economic recession affected the Intra-Asia

trade as well, but at somewhat modest impact than the East-West global routes. However

the Intra-Asia market was among the first trade routes to recuperate from the crisis. IADA

data, although represents about 60% of the carriers in the trade, can serve as an indicator

to the decline and growth trends of the Intra-Asia trade between the years 2008-2010

(Figure 2). The growth in the Intra-Asia liner trades has been one of the main factors

responsible for the fast recovery in container volume at the Far East main ports in the

years 2009 and 2010, Fossey and Galhenda (2010).

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Figure 2: Volumes of Trade carried by IADA members 2008-2010

Source: Intra-Asia discussion Agreement (IADA).

Based on WTS individual country trade in terms of origin and destination data, IHS

Global Insight has analyzed the volumes of trade in Intra-Asia market. In this case, the

Intra-Asia trade was treated as Far East, excluding the Indian Sub Continent and the

Arabian Gulf. The Intra-Asia trade, according to Global Insight is not a single trade and

can be classified as South East Asia, North Asia and Philippines and Taiwan trade, all the

countries in the Far East with China and all the countries with themselves. The combined

volume of imports and export in the Intra-Asia market is estimated by Global Insight to be

approximately 23 million TEU in 2010. This figure place Intra-Asia as the top trade region

in the world, some four million TEU more than the following two trade areas: Europe –

Asia trade and the transpacific trade (Table 3) . The figures also indicate that Intra-Asia

trade, on one hand, declined during the last recession by the lowest rate and on the other

hand the recovery rate in the year 2010 was higher than any of the other trade areas.

Additionally, the forecast for the following two years is higher for the Intra-Asia market is

the most promising. Interesting to note, although not surprising, that the Transatlantic

trade between the United States and Europe, which were leading all the large trade areas

for many decades and at least until the early 1970s, is legging considerably behind the all

three other trade areas. Particularly striking is the fact that in 2010, the volume of trade in

the Intra-Asia market is four times higher than the volume of trade in the transatlantic.

Table 3: Containerized Trade 2008-2012

10

2102 2100 2101 2112 2112

127.0

7.0%

118.6

6.8%

111.1

11.8%

...9

-9.5%

8...1 World

% change

26.6

8.6%

24.5

8.0%

22.7

15.3%

8..1

-6.4%

08.. Intra Asia

% change

21.9

6.8%

20.5

7.3%

19.1

13.7%

16.8

-9.7%

18.6

Europe – Asia trade

% change

22.1

7.3%

20.6

8.4%

19.0

13.8

16.7

-13.5%

19.3 Transpacific Trade

% change

6.0

5.3%

5.7

3.6%

5.5

14.6%

4.8

21.3%

6.1 Transatlantic Trade

% change

Source: HIS Global Insight

5. SUMMARY AND CONCLUSIONS

From several perspectives, the Intra-Asia market is fragmented, unclear and not so simple

to analyze. Unlike other major containerized trade routes, the geographical definition, the

size and the volume of the Intra-Asia trade is not clearly understood. At least three

different types of services can be identified in the region's trade routes: the strictly intra-

Asia cargo moving between the Asian states, the transshipment and feeder trade, and the

domestic trade along the coasts of individual countries, mainly China. The precise

answers to this dilemma have a great impact on the actual volume and characteristics of

the Intra-Asia trade. Several stages in the evolution of the Intra-Asia market can be

identified. The globalization of the economy and the division of labor since the early

1970s are clearly responsible for the emerging Newly Industrial States (NIS) in Asia and

the lifting of the volume of export from the region. The next stage of development of the

Intra-Asia market is strongly related to China. On December 2001 China has joined the

World Trade Organization. This was a landmark event for China and later on for the

Intra-Asia market, as it started the large inflow of foreign investment to China and the

shift of production sites of many large firms to China. Another important landmark in the

development of the Intra-Asia trade is the ASEAN-China Free Trade Area (ACFTA)

which came into effect on January 1st 2010. The establishment of an economic market of

1.7 billion people, the biggest Free Trade Area in the world and the removal of trade

barriers has already shown an significant impact on the trade and has great potential for

the years to come.

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The important structural change in the current market is that ASEAN countries become

suppliers of not only the growing domestic market of China, but also its industrial needs.

The growing share of the trade in Intra-Asia trade is based of semi-final goods bounds for

assembly in China for re-export to Europe and the US. The recent growing Intra-Asia

trade has introduced 26 new shipping services in 2010 only. Moreover, the capacity of the

slots in the trade was increased with the growing size of the vessels and upgrading of

ports throughout the region . The smaller 1000TEU vessels serving the Intra-Asia market

are gradually being replaced by larger vessels and even Panamax vessels are already

operating in some sectors of the trade. The increase in vessels' size in the East-West

global trades and the cascading of larger vessels to the Intra-Asia market is part of this

trend. At the same time, the Intra-Asia shipping market is characterized by intense

competition and relatively low margin of profit. Regional carriers are trying to protect

their market share as more long-haul lines trying join the market. The fragmented

structure of the Intra-Asia market reflects on the ability to present accurate figures on the

volume of trade. Estimates of the current volume of the Intra-Asia trade, based on variety

of assumptions and definitions, range between 14 million TEU to 26 million TEU. The

lowest estimate presented in this paper – 14 million TEU in 2010, is based on IADA data

which constitute about 60% of the capacity of the carriers in the trade. The highest

estimates presented here – 23 million TEU (HIS Global Insight), reflects a wider

definition of the Intra-Asia trade. Despite the difficulties in defining the boundaries of the

market and the wide range of estimates of the volume of trade, the economic growth of

China and the countries in the region, the greater cooperation and the recent trade

agreements and removal of trade barriers, are all indicators that the Intra-Asia has a great

potential to become a major trade center in the years to come.

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