Trade War Winners: Logistics Firms Helping Flee PRC

♠ Posted by Emmanuel in ,, at 7/31/2018 03:46:00 PM
Deserting PRC factories in the trade war era? Asian logistics companies are here to help...for a nominal fee.
With assorted China-made, US-bound manufactures being hit with 25% tariffs, some firms have responded by moving their factories out of the PRC to elsewhere in Asia. From an efficiency standpoint, I am ambivalent about this phenomenon. On one hand, there may be some wastage in leaving already-established production facilities--especially if the end result is resettling elsewhere where it's not necessarily more efficient simply to avoid the aforementioned tariffs. (Yes, that's trade diversion.) On the other hand, the move may hasten the inevitable. That is, mainland China is no longer the lowest-cost production location for labor-intensive goods, so Trump's tariffs could simply be the last straw in forcing a (sensible) decision to move.

Regardless, there is a clear beneficiary of all this movement of production facilities out of China: Asian logistics firms. Hong Kong's South China Morning Post cites Kerry Logistics, owned by Malaysian billionaire Robert Kuok:
Kerry Logistics Network, a Hong Kong-listed firm owned by Robert Kuok, Malaysia’s wealthiest man, has become a beneficiary of the ongoing trade war between the world’s two largest economies, as customers shift part of their production lines from mainland China to such destinations as northern Malaysia’s Penang to skirt US tariffs.

“Our clients have been shifting part of their production lines as early as March from China to other Asian countries where they already have manufacturing plants,” said the logistics company’s managing director, William Ma Wing-kai.

The Sino-US trade war has been forcing Kerry’s clients to shift their production towards the members of the Association of Southeast Asian Nations (Asean), or to ship finished goods to the Americas to avoid the increased tariffs. Either way would increase shipping volumes, Ma said. “This is a reallocation of global production bases,” Ma said during an interview with the South China Morning Post.
The net beneficiary of all this movement, geography-wise, could be lower-cost, investor-friendly Southeast Asian destinations:
The ongoing shift of production bases will lead to trade growth in Malaysia, Vietnam, Myanmar and Laos starting in the second half of this year, Ma said, a trend that will last for many years to come. “Our business in China may be affected a bit, but business in Asia is rising,” he said.