Mounting geopolitical tensions, shifting alliances and changes in the flow of foreign investment threaten to gradually remould global trade patterns. This warning comes from Oslo-based Xeneta, an ocean and air freight rate benchmarking and market intelligence platform.
Xeneta points to evidence in the rise of “friendshoring” and evolving freight volumes between key markets to map what may be a “new world order”. China, the US, Vietnam and Russia appear to be some of the key players in a slowly unfolding plot.
The struggle for security
‘In the aftermath of the US-China trade war, the global pandemic and the invasion of Ukraine, amongst other on-going factors, there’s been renewed focus on supply chain security,’ comments Emily Stausbøll, Market Analyst at Xeneta. ‘There’s a new appreciation of how easily everyday operations can be disrupted, and the growing geopolitical uncertainty is only exacerbating that.’
She adds: ‘As a result, we’re seeing more signs of friendshoring, whereby investments, manufacturing links and facilities are moved to countries that are deemed to be “friendly” – essentially sharing the same values or geopolitical outlooks. This is a gradual process, but we can already see some significant changes in the flow of containerised ocean freight and a real sea change in streams of foreign investment. The impact of this should not be underestimated.’
Xeneta’s analysis reveals some stark developments. Focusing on the US, the last five years have seen a rise of 26 per cent in containerised imports from the Far East. However, of the twelve major economies in the region, China tied with Singapore in recording the lowest growth in these exports, “just” a seven per cent increase (Hong Kong was the only one of the economies not to grow volume here). That sits in marked contrast to “the more friendly” Vietnam, which saw a growth rate of 156 per cent of containerised trade into the US between 2017 and 2022.
A similar trend emerges in terms of the share of imported volumes. In 2022, 56 per cent of all containerised imports into the US from the Far East came from China. The apparent strength of this figure clouds the reality that this share has actually fallen by ten percentage points from 2017. Vietnam, on the other hand, has almost doubled its share, from six per cent in 2017 to eleven per cent in 2022.
Export data from the first months of 2023, notes Stausbøll, backs up the impression of a trade world in flux.
She explains: ‘March saw a clear drop in exports from China to the US, with USD 3.6 billion less trade than the year before. However, despite this significant fall, China’s total exports managed an impressive year-on-year growth rate of fifteen per cent in March. How? Russia is the obvious answer.’
‘With their trade possibilities hamstrung by a wave of international sanction restrictions, Russia boosted its exports from China by USD 5.2 billion year-on-year, more than making up for the US shortfall. Exports to South Asian countries also posted strong year-on-year growth for the month,’ states Stausbøll.
Xeneta believes such shifts are far from the end of the story.
‘If we look at the IMF’s analysis of foreign direct investment (FDI) flows the movement is crystal clear – in short, we see friendshoring in action,’ Stausbøll continues.
The International Monetary Fund found that investments by foreign companies into China fell to their lowest level in close to two decades in the second half of 2022. They collapsed by 73 per cent year-on-year, down to USD 42.5 billion. Putting this into context, between the second half of 2020 and first half of 2022, foreign investments averaged USD 160 billion in each half year.
By way of contrast, Vietnam has seen FDIs grow by 61.2 per cent year-on-year across the first three months of 2023, including a 62.1 per cent increase in the number of new foreign-invested projects. The processing and manufacturing sectors attracted the most investment here, accounting for around 75 per cent of the total.
Forecasting the future
Stausbøll comments: ‘It takes time to build new production bases and make port infrastructure investments, as we’re seeing in, for example, Vietnam, Cambodia and Singapore, so the impact of investments today won’t be fully appreciated until tomorrow. This implies that the changing trade patterns we’re seeing now could just be the beginning of a far greater realignment.’
She concludes: ‘Moving forwards, the evidence suggests we’ll see more trade and investment decisions based on geopolitics rather than, say, availability or price. How this progresses, and the speed of change, will be dependent on a range of uncertain factors – not least the escalating tension around Taiwan. So far, Europe has maintained its share of imports from China, with key leaders taking a more conciliatory approach than the US, but another major geopolitical “event” could transform that. The only sure thing is change, and friendshoring is bound to influence how that unfolds.’