Transport bottlenecks hamper Asian trade

Trade volumes are up and bank credit is cheap but Asia''s traders are hampered by infrastructure bottlenecks.

When the largest trade finance bank in the region reports a 23% rise in trade turnover in 2004, things are clearly looking good. "After six years of deflation we are now seeing renewed growth in trade in Hong Kong," says Alistair Currie, HSBC's head of trade services Asia-Pacific. "And a lot of our smaller areas like Bangladesh and others around the region are growing too. Trade business is very robust in Asia at the moment," says Currie.

It's a sentiment shared by traders and financiers around the region. With all of the large banks FinanceAsia spoke to recording increased volumes in trade deals negotiated and confirmed. "Growth has been the strongest in North Asia," says Andrew Au who runs Citigroup's regional trade business. "In North Asia it is intra-regional trade that is growing the fastest between markets like Japan, Korea and China."

The biggest trading partner for most regional countries, and indeed many western countries too, is China. In the first nine months of last year, China imported around $412.3 billion worth of manufactured products and commodities, and it sold another $416.2 billion in exports (a rise of between 35% and 38% year-on-year). Growth has been so strong that the government introduced austerity measures last year to put the brakes on the manufacturing industry. These measures included tightening lines of credit through the banking system and introducing new export tariffs.

While the impact of these measures is transpiring, other global happenings in the trade finance arena are further propelling China into the spotlight. The historic removal of global garment quotas in January this year is only likely to increase China's export potential. Industry watchers say China's access to an abundant low-cost workforce will help it to attract more garment-making contracts as buyers consolidate the number of global suppliers. The losers will be countries like Mauritius, Bangladesh and Indonesia unless they quickly re-engineer their factories. China's three-week shipping times to the west coast of the US will also give it the upper hand over more inaccessible low cost producers such as India.

The global up-tick in trade volumes is placing big pressure on shipping and transport infrastructure, a situation that is likely to get worse before it gets better. "Freight rates are going up, access to containers and ships is tight," says Currie at HSBC. "Bigger companies with a lot of buyer power behind them have the advantage when securing these services. And when the containers reach port, the pressure is on the operators to get them unpacked and restuffed as quickly as possible."

In China, where imports outstrip exports, some ships leave the country empty. And foreign manufacturers are picking up the tab for this imbalance. A case in point is New Zealand building supplies manufacturer Carter Holt Harvey which has experienced a 150% hike in freight costs to its major markets such as China in the last year. "In 2001 we were paying $17 a tonne to ship our goods," says the company's outgoing chief financial officer, Jonathan Mason. "For the past six months we have been paying between $50 and $55 a tonne for the same service." In many ways the rise in shipping costs has offset the benefit of higher commodity prices for Carter Holt Harvey's wood products, says Mason.

The other logistics problem frustrating traders with China is the administration of new export tariffs - the ones introduced under the government's austerity measures. While suppliers have been able to factor the cost of the tariffs into their invoices, removing the monetary impact of the tariffs, it is the payment and collection of the tariff that is slowing things up. Several high level delegations are said to have visited Beijing to urge the government to speed up the collection process by better instructing provincial ports and authorities on how the fees should be levied.

Market commentators say logistics bottlenecks will require significant investment in infrastructure into the foreseeable future. Ports on the west coast of the US are already showing signs of strain under the increased flow of shipments coming from Asia. The transferring of goods from dockside to the rail and road network is also a problem. "US ports have poor automation and productivity is hampered by labour union action," says one trader. "There needs to be big investment in new infrastructure in the next few years to cope with the goods coming from Asia." Mason at Carter Holt Harvey says he hopes the shortage in containers and ships will be rectified in two years. The shortage is certainly proving a boon for Korea's ship-making yards.

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