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Free trade and Asia's logistics resurgence - takeaways from Asian Logistics and Maritime Conference


Free trade promulgation and its relevance in the global economy took center stage in the keynote address of Hong Kong’s Chief Executive, Carrie Lam, at the recently concluded Asian Logistics and Maritime Conference in Hong Kong. Lam spoke about Hong Kong’s bustling trade activity as it projects itself as one of the world’s preeminent logistics and maritime centers, and was borderline critical of the trade spats that have currently held economies in a deadlock.

“Free trade is taking something of a thrashing these days, given the rising undercurrent of unilateralism and protectionism,” she said. “For Hong Kong, the primacy of free trade is immutable. It’s thanks to free enterprise and our ability to adapt to the changing market that has made Hong Kong one of the world’s leading trading economies, and a leading international financial and logistics center.”

Unlike regular economies, Hong Kong’s GDP has had an inordinate dependence on logistics and trade, with the sector contributing to 22% of the total GDP while employing about 19% of the country’s workforce. This has led to the country’s trade value to stand at nearly $1.06 trillion - a value thrice as big as its GDP.

Hong Kong has constantly put its weight behind signing free trade agreements, with Lam reminding that it has been a year since the state signed a free trade and related investment agreement with the Association of Southeast Asian Nations (ASEAN), which would take effect from January next year. The country has also concluded a free trade agreement negotiation with Australia a few days back.

Dato Lim Jock Hoi, the secretary-general of ASEAN spoke about the growing importance of ASEAN countries in the global economic rhetoric, as the region is now the sixth-largest economy in the world, with a combined GDP of $2.8 trillion. Jock Hoi alluded to the need for more investment in the transportation space, pointing out that the challenge lay in expanding ports and bolstering highway and rail networks.  “ASEAN is committed to enhancing regional and global connectivity, but we need sustainable solutions to infrastructure to provide greater connectivity,” he said.

All through the conference, the U.S.-China trade war found mention, with logistics incumbents largely echoing that its impact would not be as catastrophic as advertised. Karen Reddington, president of Asia-Pacific division of FedEx Express, contended that there might be a few “bumps in the road” due to tariffs, but it would not stem trade flow.

Mike Fang, VP and head of Maersk Line’s Greater China region (CXE: MAERB.C.IX) opined that the trade tensions would cause disruptions for its customers in the transpacific, but also mentioned that this would create a spike in demand over the region as shippers rush to get ahead of the tariffs that would be in place by the beginning of next year. Though it is good on the shorter run, he expected a more extended ebb period following the Chinese new year. “In the long term we need to put this in perspective, it impacts about 2% of global trade,” he said.

However, the trade spat could inadvertently help boost manufacturing in the ASEAN countries like Indonesia and Vietnam, which are already cashing in and are expecting a jump in exports to the United States. Chinese businesses, with the intention of circumventing the tariffs, are shipping unfinished goods to South-East Asia for assembly and also use these countries as an export base.

Fang also spoke about improving connectivity across the land, apart from strengthening maritime transport. The Belt and Road Initiative, for instance, has connected China to the depths of Europe, with rail connections now going as far as France. Railroads are attractive to global supply chains as it is faster than sea freight, and has carbon emissions that are 90% lesser than air freight. Apart from promoting such networks, Maersk has indulged in several digital initiatives of its own that could improve customer service, reduce costs, improve asset productivity and develop new revenue sources, said Fang.

As supply chains are increasingly digitized, it makes way for higher transparency and visibility into logistics processes, with the technology of blockchain being an example. Dean Croke, chief analytics officer of Blockchain in Transport Alliance (BiTA), spoke about blockchain’s immutable ledger system which could help secure information across complex supply chains, as freight moves through various stakeholders.

For this to materialize, Croke advocated for creating industry-wide blockchain standards that would ensure data interoperability. “Blockchain has emerged as a serious topic in the logistics space over the last year, and it is important that we standardize data formats across the supply chain, or it would lead to us spending a disproportionate time in mapping legacy data systems to a standardized data system,” he said. Since its launch last year, BiTA membership has snowballed to over 450 companies, with the likes of UPS, FedEx, Uber Freight and Google getting onboard, as they collectively look to create a common framework and standards from which participants could build DLT and blockchain applications.