By Chris Oliver, MarketWatch
HONG KONG (MarketWatch) — Growing interest among Western companies in manufacturing closer to their home markets could be bad news for some of Asia’s biggest shipping lines, with some analysts now warning of flat or even declining trade volumes for years to come.
In research released earlier this week, Australian investment bank Macquarie warned of a “lost decade” for the shipping firms servicing the major trade routes linking Asia with markets in the U.S. and Europe.
The current soft patch for container rates, now into its fifth year, could be part of a structural trend, as surging labor rates and other rising costs mean Asia’s manufacturing hubs are no longer the great bargains they once were.
The tilt by U.S. and European companies toward “in-sourcing” — locating manufacturing closer to home markets — may even be more widespread than commonly thought, Macquarie said.
And at very least, Macquarie analysts wrote in the report, “the outsourcing of production to Asia from Europe and North America, respectively, has now matured.”
The research house said trends even point to a coming “inflection point” that could mark a renaissance in Western manufacturing, though it was also careful say it didn’t see a sudden, large-scale stampede out of Asian manufacturing in the foreseeable future.
Other Asia experts agreed that inflating costs were a influencing factor, especially in China, where surging labor costs so far show few signs of cooling.
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“There are an increasing number of anecdotes, for example of U.S. companies, where a larger portion of them saying they want to move their operations back to the U.S.,” Société Générale economist Yao Wei said in Hong Kong.
Manufacturing superpower China, often seen as the workshop for the world, may be at the center of this phenomenon. Yao said that pulling production from China and either back to the West or to cheaper options in Southeast Asia, was in almost all instances due mainly to the rising wages for Chinese workers.
Another factor dragging on Chinese manufacturing has been strength for the yuan, China’s currency, which since the start of the year has been relatively flat against the U.S. dollar but higher against many other major currencies.
Beijing can do little to dampen wages or weaken its currency without sparking domestic problems or provoking a backlash from its international trading partners, Yao said.
She said China’s incoming leadership is likely drafting plans that will lay out a new direction, and that “the right policy choice is for the government to facilitate manufacturing upgrading, or moving up the value chain.”
Dwindling trade lowers all boats
Companies shifting production away from Asia could help explain the recently weak conditions on popular East-West container-shipping lanes.
Instead of a pickup in haulage in what should have been one of the busiest annual periods as retailers stock up for the Christmas season, volumes on the Asia-to-Europe routes fell by 9% in June.