Shifting production from China is impossible, says shipping chief

Companies are expanding production outside of China to reduce the risk of rising geopolitical tensions, but the country’s dominance in world trade makes it impossible to remove it from global supply chains, one of the largest container shipping groups has said. greats of the world

“The scale [and] the weight of China means it’s easy to overstate the impact of ‘China plus one,’” said Michael Fitzgerald, deputy chief of finance at Orient Overseas Container Linea Hong Kong-based group that belongs to the Chinese state-owned company Cosco.

“It’s happening. It’s real,” he told the Financial Times this month, referring to the strategy of companies that move or expand production outside Porcelain amid tensions between Beijing and Washington.

“But don’t forget that the absolute scale of China is so large that even if Vietnam is growing in larger numbers [and] if China is growing in smaller numbers, it is still a large proportion of the supply chain.”

Apple, Samsung, Sony and Adidas are among the multinational companies that have moved manufacturing to Southeast Asia from China in recent years, while Siemens has also been investment search in the region to reduce supply chain risks.

While Fitzgerald acknowledged that companies have “adjusted” and moved some production out of China due to lower labor costs and risk management, “it will be that kind of gradual change over time.” It’s not [that] We all pack up and go.”

“It’s just not possible,” he said. “How would you want to change so much production?”

A crane loads containers onto an OOCL container ship in Felixstowe, UK
An OOCL container ship at Felixstowe, UK. The company says it has been diversifying growth into its cargo routes to Southeast Asia © Chris Ratcliffe/Bloomberg

OOCL has, along with its parent company, about 11 percent share of the global container shipping market, according to Alphaliner data.

Fitzgerald’s comments come after the share of US container import volumes from China fell 10 percentage points from a year ago to around 32 percent, according to logistics technology group Descartes. , while India’s and Thailand’s import shares increased slightly to 5 and 4 percent, respectively, during the same period.

OOCL said it was diversifying growth into its cargo routes and expanding into Southeast Asian countries, including Vietnam. Its newest ship, one of the world’s largest container ships, docked in Vietnam last month during its maiden voyage between Asia and Europe, reflecting an adaptation to “where the trade flow is,” Fitzgerald said.

“We have been growing a lot in emerging markets, in Africa, in Latin America, in recent years. Southeast Asia, obviously. So, yes, of course, we have that diversification approach,” he said. “But look, [US-China] it is still a huge market. . . whether you’re talking about all sorts of different products.”

The company said it had a record year in 2022, with revenue rising 18 percent from a year earlier to $19.8 billion, even as freight rates soar due to global supply chain disruptions. of the pandemic began to normalize.

Fitzgerald forecast a “mixed” outlook for this year as shipping giants like Maersk have warned of an “abrupt end” to the rise of maritime container transport. OOCL reported a 58 percent drop in revenue for the first quarter of this year compared to last year to $2.2 billion.

Earnings this year “will not be like last few years,” he said, but the company has reduced debt and has a stronger net cash position.

OOCL’s direct parent company, $14 billion investment group Orient Overseas (International), was acquired by Cosco in 2018. Combined with Cosco, one of China’s largest shipping conglomerates, the group is the fourth-largest player of the world, according to Alphaliner.

Additional reporting by Oliver Telling in London

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