In 2015, the 10-country ASEAN group of nations will become the ASEAN Economic Community (AEC), a common market of 620m people. Economic growth will undoubtedly accelerate within the region and opportunities for those in the logistics business will be huge as the area transforms from its manufacturing background to become ever more important consumers.
Individually, ASEAN countries are poorly placed to compete with their massive northern neighbour, China, which has an unmatched pool of inexpensive workers and a fast-growing middle class of consumers. Collectively, though, ASEAN nations can scale- up to be a potentially powerful competitor to China, as well as one of its largest trading partners. As an economic bloc, ASEAN ranks sixth in purchasing power in the world after the EU, USA, China, India and Japan.
Free trade agreements between ASEAN, China and India have stimulated inward investment, boosting manufacturing and funding of dams, roads, railways, electricity grids, gas pipelines and other vital infrastructure. Since 2008, investment in Southeast Asia has tripled.
The population of ASEAN is roughly twice that of the United States and 20% larger than the European Union. Intra-ASEAN trade, currently only about 25% of total trade by members, is expected to post strong growth.
Rising costs in China mean manufacturers are relooking at ASEAN. China is expected to make a crucial shift from an investment to a consumer-driven economy.
This means Asian countries that have low labour costs and strong logistics should benefit as global manufacturers seek new locations, a research from Citigroup said. Citi’s view is that China’s investment spending as a ratio of gross domestic product is nearing its peak, and that a rebalancing of China’s economy—wherein consumer spending will play an increasingly dominant role—will be the most likely outcome in the next few years.
There is no country that currently has a better combination of low wages and good logistics than China, the research said, but in forecasting as to where else the factories may relocate, the most obvious possible beneficiary noted was Malaysia, where wages and logistics are near China’s levels.
“Indeed, most of the other beneficiaries are likely to be Asian: Thailand, India, Philippines, Vietnam and possibly Indonesia all score reasonably well here,” the research said.
Demographics also work for ASEAN and against China. China has an aging population, which will become a burden on the state and put upward pressure on wages.
Most ASEAN countries are young by comparison. In Cambodia, for example, more than half the population is under age 25. So ASEAN is likely to become the go-to place for low-cost manufacturing.
As ASEAN countries move towards economic integration, a major shift in Asian trade flows is taking place. A diminishing proportion of manufactured goods made in the region is going to the US and Europe, and an increasing proportion is staying within Asia. The shift signals the rise of a growing Asian consumer class. In 2009, China became ASEAN’s largest trading partner. By the end of 2010, bilateral trade had grown by 37.5% to US$293bn. Add to that the likelihood of increased intra-ASEAN trade and the picture is one of a massive market.
ASEAN is moving towards a single window for customs where there is a single submission of data and information; a single and synchronous processing of data and information; and a single decision-making for customs release and clearance. To this end Jakarta’s Tanjung Priok Port has started testing the operational implementation of its new port clearance system Inaportnet on July 1.
The system, to be coordinated by the directorate-general for sea transportation, along with the accompanying Tradenet system for import-export permits, is expected to lead to the full implementation of the National Single Window in Indonesia, a scheme to simplify paperwork requirements for traders and which will also feed into the Asean Single Window Scheme.
Logistics is one of the key service sectors ASEAN has identified for liberalisation. It will be vital to unlocking the region’s potential. The problem here is that many of the ASEAN nations have sizeable state-owned logistics companies, airlines, and shipping lines. They have port and airport investments. So they have logistics assets that will be difficult for them to parlay into any kind of ASEAN integration.
One outgrowth of ASEAN’s economic initiative will be an increase in the number of companies outsourcing management of their supply chains and re-examining the location of their production assets so they can take advantage of regional integration and connectivity.
The countdown to 2015 has many people salivating – the time to prepare is now.