Asian trade is booming

A shipping expert says Asian trade volumes have surged this year thanks to China; so much so there is a shortage of shipping containers.

SS Teo is is the CEO of Singamas and president of PIL Transportation. The former's principal business is manufacturing [shipping] containers in China and the latter's is shipping. As such, Teo - who is a Singaporean - has a savvy handle on Asian trade flows. In this interview he notes that Asian trade is a lot more robust than many think and says among other things that the region experienced a shortage of containers this year, the first time this has happened since 1995-96.

Has your container business been affected by the slowdown in the US?

Singamas is involved in container manufacturing, depot and terminal management, and midstreaming in Hong Kong. Normally each year, in the first quarter, you have a low season. Typically for our factory, we are busy from April until October. Why from April? It is because Chinese New Year is in February.

This year there was a strange phenomenon because immediately one or two weeks after Chinese New Year, the container demand became very strong. Most of us were caught off-guard.

During the second quarter, we had a lot of enquiries and couldn't take on more orders because we couldn't get steel plate. In other words, the demand for containers is still very strong. Looking forward, we have bookings until November in some of the factories. Some of the daring buyers are even looking at booking after New Year. The demand for containers actually reflects the fact that exports from China has increased tremendously as compared to last year. Though imports has increased, the gap between export and imports has grown. Looking at where we operate in China and Hong Kong, the business is very busy. A container shortage hasn't happened for many years. For once, shipping lines and leasing companies cannot get hold of containers.

All the way to November, shipping companies still have heavy bookings and there is no sign of slowing down. At least for China, export growth is very strong. Container throughput has grown by 32% in the first six months. Our second core business is container depots, and it is very much affected by the throughput in the port. If there are more throughputs, our business will go up. We receive containers and release containers. That also seems to be going very well.

When is the last time you remember that container demand exceeded supply?

Maybe 1995-96.

I think all the expert advice went wrong. Even at the end of last year, I predicted the export growth from China might be 5%, on an optimistic forecast, and on a pessimistic one, flat. It has outperformed everyone's expectation.

There is now a phenomenon, where the gap in supply and demand for containers exists. At our factories in Xiamen and Shunde, people take away boxes before the paint has dried. That hasn't happened for a long time.

Going forward, even though we talk about the American economy slowing down, there is an election in 2004, and historically a year before a presidential election there is a lot of spending. Next year is not going to be that bad in my view.

Is Asia becoming more integrated in its approach to manufacturing ie moving unfinished goods from country to country before sending them to their final export destination?

I do see a lot of movement of containers around Asia and it is increasing. For example more raw materials are coming out from Southeast Asia and heading for China.

Marc Faber thinks that China will be the workshop of the world.

In Britain - after the industrial revolution - they were bringing cotton from India to Lancashire, and after they weaved it they sent it back to India as a finished good. This is happening now in Indonesia, where they bring in the logs to China, and make it into furniture in large factories and re-export the furniture to Indonesia.

So is China good for the rest of Asia? Or bad for Asia?

You need a locamotive to pull the Asian economy. It used to be Japan. Whether China can become the locomotive of Asia, will depend on how successful they are in creating trade relationship with Southeast Asia. The free trade area that Zhu Rongji proposed two years ago was partly to allay the fear of the Southeast Asian countries about China.

I think if Southeast Asia can harmonize their development with China; if they can supply the semi-finished raw materials to China it can work. There are certain products Asia has but China doesn't have. For example, seafood and raw materials. If they can exploit the resources carefully and hopefully increase the standard of living in China, there will be a big market for these products. Then the Southeast Asian market will benefit.

Then there is Japan. I go to Shanghai every two weeks and I am seeing more Japanese in Shanghai. Even the most stubborn Japanese factories will have to go to China. If you buy a camera today, two thirds of the components are made in China.

So how is your business faring?

Prices have come down a lot. In 1990, when we started the first factory, the price was $2600 [per container]. It was $1300-1400 this year. We survived by being as efficient as we can, by taking advantage of economies of scale. In 1990, we operated one factory and produced 70,000 containers a year. And today, we are operating seven factories and will be making maybe half a million by the end of this year.

We are riding on the success story of industrialization in China.