As the world anticipated the arrival of Jan. 1, 2016, the 10 countries that make up the Association of South East Asian Nations (ASEAN) were poised for a New Year’s Eve party with special global trade significance. From that date on, goods, services, capital and skilled labor are supposedly flowing freely between the borders of the community members – Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam – which make up a combined market of 622 million people.
In 2014, ASEAN’s GDP grew 4.4. percent, and the establishment of a single production and investment base was expected to unleash more potential. Logistics operators geared up for rising traffic volumes. Kuehne + Nagel opened a 50,000-square-meter logistics hub in Singapore in January, which the company described as part of its regional expansion plan to support its fast growing supply chain clientele operating within Singapore and the ASEAN countries. According to a study produced by the Australia and New Zealand Banking Group, ASEAN trade volume could exceed US$1 trillion by 2025.
Reality, however, has poured cold water on the party plans. No new freighter service linking two or more ASEAN countries has been launched since the start of 2016. Now that the single market has been established, forwarders within the ASEAN member countries are realizing that growth is unlikely to shoot through the roof. While this is an undisputed step forward, several obstacles still remain.
For instance, although 95 percent of tariff lines are at zero, non-tariff barriers on goods and services still hamper cross-border trade. Consumer laws, intellectual property rights and investment rules have yet to be harmonized, and ASEAN’s traditional emphasis on consensus, coupled with an organization that has a tiny budget and virtually no teeth all but ensures that progress will be slow.
Without a doubt, market integration will help propel airfreight traffic forward within ASEAN members, but the emphasis is clearly on the surface. Last summer DHL rolled out an integrated LTL service that links Singapore, Penang, Bangkok, Hanoi and Shenzhen. According to the integrator, road freight is projected to grow in the Asia-Pacific region at a compound annual rate of 8.3 percent between 2014 and 2019.
Around the same time Agility introduced daily time-definite haulage services in the region, such as a four-day run between Bangkok and Hong Kong and a six-day operation linking Bangkok to Shanghai. In its comments on the launch, management noted that, particularly in the ASEAN region, trucking was increasingly regarded as an alternative to shipping by air or ocean carrier, despite some infrastructure and capacity issues.
The significant differential in GDP, trade volume and traffic flows between ASEAN member states also induces logistics operators, as well as their clients, to focus on individual markets and trade lanes rather than intra-ASEAN traffic as such. In 2013, Myanmar’s trade amounted to US$23 billion, compared with Singapore’s tally of $783 billion.
“We do see some DHL customers with an ASEAN strategy. Some of these are in response to the AEC [single market], while others have been calibrating their regional strategies for many years,” said Jasmin Aladad Khan, executive vice president, commercial and managing director of emerging markets, for DHL Express Asia-Pacific. Some of these strategies, she said, are borne out of strong ASEAN economies that have a history of unilateral trade and investment policies established between individual member states, rather than any regional integration efforts. Vietnam and Cambodia, have drawn in new investment as well as airfreight capacity, some of which is carrying regional traffic, but much feeding longhaul departures to intercontinental markets.
One example is Cathay Pacific’s freighter to Phnom Penh, which has been doing particularly well on the inbound side, according to Mark Sutch, the carrier’s general manager of cargo sales and marketing. The key traffic there consists of garment production accessories, such as fabric rolls and textiles. Exports are dominated by finished garments headed to Japan, Hong Kong, the United States and Italy. Last year, Cathay’s volume out of Cambodia climbed by 50 percent. “The long-term prospect is positive, as new factories are setting up for the production of electronic parts,” Sutch remarks.
DHL Express is also preparing for stronger regional growth, as it ramps up capacity with the construction of an express facility at Singapore’s Changi airport that is due to open later this year. The new facility will boost DHL’s throughput threefold and increase processing speed by six times.
“Coupled with increasingly regionalized manufacturing footprints, growing affluence, changing consumer behavior and the rise of e-commerce, we believe there will be increasing need for timely and rapid delivery services, giving the logistics and express industry ample opportunities to grow in the region,” Khan said. “We are continuously enhancing our infrastructure and capacities, such as the upcoming South Asia hub, to meet the anticipated growing demand in the region.”
Khan added that she would like to see liberalization make further headway, such as in the creation of an open skies policy within ASEAN.
“Domestic legal regulations often constrain further liberalization, which hampers full integration and connectivity. This would help cargo operators like DHL Express to operate a more cost-efficient aviation network,” she explained. “Our position is that if liberalization of passenger traffic is too sensitive, then a gradual approach to liberalize cargo flights first might be undertaken.”
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