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Trade in Asia: Adapting to shifting realities

Kelvin Leung
The head of DHL Global Forwarding’s Asian business talks about changes in Asian trade
An interview with
CEO, DHL Global Forwarding Asia Pacific
Port of Hong Kong during sunset

The extent of supply chain disruptions caught the international trading system somewhat off-guard last year when the COVID-19 lockdowns first kicked in. But trade has bounced back, and this recovery is being led by Asia – both in terms of the movement of goods in and out of Asia, as well as within Asia.

This is a good sign for the region’s economies, many of which are strongly dependent on trade for economic growth. We speak with Kelvin Leung, CEO, DHL Global Forwarding Asia Pacific, to learn more about developments in intra-Asian trade, overcoming logistical challenges in the region and the comparative resilience of Asian supply chains.

Unravel: What factors are expected to support intra-Asian trade in the coming months/ years?

Kelvin Leung: Trade across Asia is expected to increase in the coming years as post COVID-19 recoveries supercharge consumer demand. Growth in the East Asia region is projected to strengthen to 7.7%, and many of Asia’s leading economies are poised for renewed economic growth, with the e-commerce sector being one of the key growth drivers.

E-commerce sales are booming globally and will play an increasingly important role going forward. A recent study by DHL Express and Cranfield School of Management predicts strong growth for the B2B e‑commerce market in the coming years. By 2025, 80% of all B2B sales interactions between suppliers and professional buyers will take place via digital channels. It’s safe to say that e-commerce in Asia is on the ascent, with a projected growth of  8.2% between 2020 and 2025, ahead of the Americas and Europe.

Higher labour costs, which lead to increased production costs, are driving some manufacturers to shift part of their productions to other Asian countries. However, not all suppliers of such manufacturers can shift their factories. As a result, this has induced more Intra-Asia shipments of parts and components.

Many companies are also re-assessing their supply chain risks from developments like the US-China trade dispute, natural disasters, and the like. They are mitigating risks by diversifying their supply chain reliance on China. Again, this will lead to more intra-Asia movement of goods.

Unravel: In your view, will the ongoing US-China trade and tech war impact intra-Asian trade?

Mr Leung: At DHL, we take a long-term view on our business and operations in the market, and I have no doubt intra-Asia trade has room to grow significantly. If there is anything the last two years have demonstrated, resilience is key in a well-structured supply chain.

Multinational firms have been reassessing their supply chain networks to mitigate risks like the US-China trade dispute and natural disasters by diversifying their supply chain reliance on China. We have observed a number of companies moving their sourcing and production from China to Southeast Asian markets, such as Vietnam and Thailand, to capitalise on lower operating or labour costs.

Similarly, the higher costs in labour and production have also caused some manufacturers to move their production to other Asian countries.

However, the experience of managing supply chains during the pandemic has prompted companies to look beyond costs and take resilience into account when planning their supply chains. The infrastructural support within the markets under consideration is as important as the country’s manufacturing capabilities, as are their business contingency management strategies and ability to react promptly towards recovery.

Unravel: What other factors will the volume of intra-Asian trade depend on?

Mr Leung: With the current air and sea freight capacity crunch, there has been significant interest in multimodal solutions to ship goods cross-border. Our rail solutions in China have seen a healthy pick-up as customers seek capacity to send goods to Europe, and we have observed an uptick in customers using road freight services across Southeast Asia, further compelled by the launch of ASEAN Customs Transit System in the region.

The most important trend outside the realm of COVID-19 would be the development of the Regional Comprehensive Economic Partnership (RCEP), the membership of which represents almost a third of the world’s total population and around 30% of global gross domestic product. The RCEP aims to create a larger free trade zone than currently in place in either North America or Europe, with plans to eliminate tariffs on cross-border trade.

Unravel: What are some logistical/ infrastructure challenges that are holding back Asian trade growth?

Mr Leung: It’s hard to generalise, but if you look at the economic development plans of many Asian countries, infrastructure investments have always constituted a good part of larger 5-10 year plans. We see many encouraging signs of countries modernising customs processes, investing in port and airport infrastructure. While some of these developments may be delayed due to the pandemic, the intent and strategy seem to be headed in the right direction.

One of the more pressing issues in logistics is a talent shortage in Asia. As an industry and profession, an education in logistics is relatively new in many countries in the region. More than ever, logistics professionals need to be knowledgeable not just about logistics, but also in other areas relating to customers and their industries. With limited formal education programmes, it takes a good number of years of on-the-job experience. With the pandemic, it becomes evident that good logisticians and partners are crucial to business survival and success.  

In many parts of Asia, divergent customs and non-standardised cross-border administrative requirements have added to logistical challenges. In addition, the different levels of digitalisation capability in Asia—for example, the electronic customer declaration process as evidenced during the COVID-19 lockdowns—has added to difficulties.

Unravel: Supply chains in Asia-Pacific appear to have been more resilient to the impacts of the pandemic than imagined. In your view, what explains this?

Mr Leung: One key factor, to me, is that despite the restrictive measures at the borders to control visitors’ movement in most Asian markets, most governments have exempted logistics from such measures. Most of the operations—be it cross-border trucking, seaport terminals or airport cargo terminals—are considered essential to support the day-to-day lives of their citizens and are therefore allowed to continue operating.

The pandemic has laid bare the differences between companies who are prepared and those who are “swimming naked”, to quote Warren Buffett.

Even before the pandemic, the logistics industry was already undergoing significant disruption, with freight forwarders and delivery providers taking steps to innovate and push for rapid digitalisation of trade.

Digital platforms can provide real-time tracking on shipments so the sender and receiver have complete visibility on where their cargo is at any given time. They can also automate customs clearance, digitise transactions so they are completely paperless, and help calculate a shipment’s carbon emissions and allow shippers the option to reduce or offset emissions by selecting alternative fuel options, for example.

During the pandemic-induced lockdowns, in many markets, we were able to operate remotely and digitally without disruption. This was possible because of our platform which enabled operations to run smoothly.  

Unravel: From a trade perspective, do you think Asia has been able to put the pandemic behind it? Or are there nagging issues that still need to be addressed/ mitigated? 

Mr Leung: The disruptions in trade felt the world over had its origins well before the pandemic, and will also require longer term adjustments to see through.

The delays in supply chains at present are a culmination of factors. For example, port infrastructure hasn’t kept pace in some markets, and there is a shortage of containers and vessels. These issues will take time to be addressed. Of course, unexpected incidents like the Suez Canal blockage, port closures in China, pandemic-related lockdowns and closures exacerbate problems, but they are situational and specific, with hopefully less long-term implications.

Longer term, we remain bullish on the region. With Asia-Pacific’s GDP growth forecast at 6.2% year-on-year, and the progressive rollout of COVID-19 vaccines, the region is primed for a strong economic recovery in 2021. According to a report by IHS Markit, Asia-Pacific exports are predicted to rise rapidly, bolstered by the sustained strong growth of intra-regional trade within the region, as China, India and ASEAN continue to be among the world’s fastest-growing emerging markets.

Like the rest of the world, Asia cannot escape from the fact that we will all have to prepare and cope with a “new normal”.

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CEO, DHL Global Forwarding Asia Pacific

Kelvin Leung is the Chief Executive Officer of DHL Global Forwarding in Asia-Pacific, and is responsible for managing and directing the business’ activities across the region. He joined the company (previously known as Danzas AEI) in 2002, and had previously held various positions within the region. Prior to joining DHL Global Forwarding, Kelvin started his career with Cathay Pacific Airways in 1989. Kelvin holds a number of important positions in local and international organisations as well as the public and private sector, including: Vice Chairman of GS1 Hong Kong; Vice President of the Chartered Institute of Logistics and Transport; Member of the Division Committee for the Logistics and Transportation of the Hong Kong Institution of Engineers.

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