A relocation of production from China is impossible, says the head of dispatch Ship’s crew

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

“The size (and) weight of China means it’s easy to exaggerate the impact of ‘China plus one,'” said Michael Fitzgerald, deputy chief financial officer of Orient Overseas Container Line, a Hong Kong-based group responsible for the Chinese state company belongs. owned by Cosco.

“It’s happening now. It’s real,” he told the Financial Times this month, referring to the strategy of companies moving or expanding production out of China amid tensions between Beijing and Washington.

“But don’t forget that the absolute size of China is so huge that even if Vietnam grows by a larger number (and) if China grows by a smaller number, that’s still a big part of the supply chain.”

Apple, Samsung, Sony and Adidas are among the multinationals that have shifted manufacturing from China to Southeast Asia in recent years, while Siemens is also looking to invest in the region to reduce supply chain risks.

While Fitzgerald acknowledged that companies have been “adjusting” and moving some production out of China due to lower labor costs and risk management, “it’s going to be that kind of piecemeal, incremental relocation. It’s not (that) everyone packs up and goes”.

“It’s just not possible,” he said. “How do you intend to outsource so much production?”

According to Alphaliner, OOCL together with its parent company has a share of about 11 percent of the global container shipping market.

Fitzgerald’s comments come after the share of US container import volume from China fell 10 percentage points year-on-year to about 32 percent, according to logistics technology giant Descartes, while the share of imports from India and Thailand rose slightly to 5 and 4 percent in the same Period.

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

“In the last few years we have grown strongly in emerging countries – in Africa, in Latin America. Southeast Asia, of course. So yeah, of course we have that diversification approach,” he said. “But you see, (US-China) is still a huge market. . . whether you are talking about all sorts of products.”

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

Fitzgerald is forecasting a “mixed” outlook for this year as shipping giants like Maersk have warned of an “abrupt end” to the container shipping boom. OOCL reported a 58 percent year-over-year drop in first-quarter revenue to $2.2 billion this year.

Earnings this year “will not be what they have been in recent years,” he said, but the company has reduced debt and is in a stronger net cash position.

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

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