SHENZHEN, China — Inter-regional shipments in Asia are set to surge, boosting demand for intra-Asia shipping with China supplying components to factories in the region as companies take advantage of cheaper land and labor costs in Vietnam and Bangladesh. 

“Trade flows are about to increase exponentially,” Ben Simpfendorfer, CEO of strategic advisory company Silk Road Associates, told shippers and maritime executives at the JOC TPM Asia Conference on Wednesday. “There will be a lot more feeder ships than there are [now].”

He said this would also lead to investment in ports and industrial parks, such as Tanjung Priok in Indonesia. 

Simpfendorfer pointed out that while Vietnam has become a manufacturing center for electronics in Asia with firms such as Samsung switching production of mobile phones to Vietnam from China to take advantage of lower land and labor costs, components for those products are still made in China. Samsung will close its last smart phone factory in China at the end of October. 

Some production of other goods, such as garments, has also shifted to Vietnam and Bangladesh, but manufacturing of trimmings, such as buttons and zippers, has remained in China. This reflects the increasing diversification of sourcing and fragmentation of production that is taking place as manufacturers seek to lower costs. The shift was occurring before the United States and China imposed tariffs on each other's products, said Jane Singer, managing director of apparel manufacturer Inside Fashion.

Singer pointed out Bangladesh is the “cheapest of the cheap” when it comes to labor costs, while also benefiting from a duty-free agreement with Europe. 

Singer said the value of Vietnam's garment exports rose 13 percent in the first half of this year while volumes rose 9.2 percent. Bangladesh posted an 11.5 percent rise in the value of garment exports and a 5.6 percent rise in volumes. China by comparison saw the value of garment exports rise 2.3 percent, while volumes were 4.9 percent higher. 

‘Diversification makes sense’

The movement out of China “isn't about tariffs,” but about firms reducing geopolitical and other risks, she said. “There is a lot more political risk everywhere in the world. Diversification makes sense,” Singer said. “Greater diversification means people need much more logistics support.”

While Vietnam and Bangladesh have been the big winners in the shift of production around Asia, other countries, such as India, appear to have lost out. 

“India has done a very poor job in marketing itself. Textile mills are not there yet. There isn't a supply base. There is no strong national level policy,” Simpfendorfer said, pointing out that representatives from Indian states competed with one another during one visit by potential foreign investors. 

But while some production is shifting out of China, Simpfendorfer said, “China is too big to replace” with its production of clothing and footwear alone bigger than its three largest competitors — Vietnam, Bangladesh, and India — combined.

Michael Crotty, founder and president of textile and curtain producer MKT & Associates, said it would be very difficult to move production out of China. He pointed out US tariffs were imposed to lure manufacturing back to the US, but for his company, “It's not happening. It won't happen,” because only China can offer the plethora of fabrics and raw materials his company needs while providing a skilled workforce. 

Crotty said even if tariffs were to increase, he'd move production to lower-cost provinces in China, such as Hubei and Anhui that are close to the center of the country.

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